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system
usage of a sell stop order
user
it depends to some extent on how you interpret the situation, so i think this is the general idea. say you purchase one share at $50, and soon after, the price moves up, say, to $55. you now have an unrealized profit of $5. now, you can either sell and realize that profit, or hold on to the position, expecting a further price appreciation. in either case, you will consider the price change from this traded price, which is $55, and not the price you actually bought at. hence, if the price fell to $52 in the next trade, you have a loss of $3 on your previous profit of $5. this (even though your net p&l is calculated from the initial purchase price of $50), allows you to think in terms of your positions at the latest known prices. this is similar to a markov process, in the sense that it doesn't matter which route the stock price (and your position's p&l) took to get to the current point; your decision should be based on the current/latest price level.
assistant