Sell Stop: Selling the Breakdown
A sell order placed below the current price: it automatically sells when the price breaks down through support.
Risk warning: forex, CFDs, options, futures and crypto assets usually involve leverage or high volatility, and you can lose more than you put in. This lesson only teaches the concepts; all numbers are for illustration and are not investment advice.
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Text version · Forex: Pending Orders & Risk, lesson 5: “Sell Stop: Selling the Breakdown”
A sell order placed below the current price: it automatically sells when the price breaks down through support.
Short once it breaks down
A Sell Stop sits below the current price. Once price breaks support, the downtrend is confirmed, so you sell (go short) with the trend.
Breaks down, then bounces right back
If price only dips briefly below and then bounces, a Sell Stop can make you sell at the bottom.
It's also the long's stop-loss
A long's stop-loss is really just a Sell Stop: when price falls to it, the system sells at market to close you out. So stop-losses face the same slippage problem.
Key takeaways
- A Sell Stop sits below the current price, usually just below a support level.
- You expect the price to break through support and keep falling.
- If the price bounces right after the break, a Sell Stop can end up selling at the low.
- A stop-loss on a long position is really just a Sell Stop.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- Press ▶ to play the default "Breakdown" scenario and find the trigger point.
- Switch to the "Dip, then bounce" scenario and watch the short's floating P&L when price bounces after the breakdown.
- Switch to the "Breakout up" scenario: with price rising all the way, does the Sell Stop still fill?
- Switch to "Free drag", grab the price label and drag it down to trigger the order yourself.
Quiz and explanations
- 1. The price is 1.0850 and support is at 1.0800. You want to go short if it breaks down. What should you place?
- Answer: Sell Stop 1.0800.Selling below on a breakdown → Sell Stop.
- 2. Someone placing a Sell Stop expects the price to…
- Answer: Keep falling after the break.Stop orders bet on the trend continuing.
- 3. You're long from 1.0850 and want to close automatically for a loss if the price breaks below 1.0820. What kind of pending order is this, really?
- Answer: Sell Stop.It sits below the current price and sells when the price falls to it, triggering exactly like a Sell Stop.
Terms in this lesson
- pip (Pip): The smallest standard price unit in forex; for EUR/USD, 1 pip = 0.0001.
- Sell Stop: A sell order placed below the current price: you sell into the move when price breaks down.
- stop-loss (Stop Loss): Automatically closes a position when price moves against you to a preset level, capping your maximum loss.