A Sell Stop Order is an order placed below the current market price.
The order gets triggered if the price were to reach that level.
(The exact opposite is a Buy Stop Order.)
I’ll explain how a Sell Stop Order works.
Let’s say you want to short EUR/USD
And EUR/USD is now 1.12345
Assuming you want to enter short only when the price makes new lows.
You’ll place a Sell Stop Order at a price lower than 1.12345.
For example, at 1.12200.
The Sell Stop Order will be triggered if EUR/USD hits 1.12200 or lower.
Let’s say you want to short Amazon shares.
But you’re waiting for fundamental catalysts to confirm the selling pressure.
And you’ll want that to be reflected on the share price as well.
If Amazon share price is $1,900, you’ll short only if it goes lower.
What you can do is to place a Sell Stop Order at $1,800.
So you’ll be in the trade when its share price falls to $1,800 or lower.