Stop-Limit Orders are commonly used as Sell Orders to avoid significant losses or to realize profits.
They can also be used as Buy Orders to buy an asset after a certain resistance level is breached during the start of an uptrend.
Before you proceed reading about how Stop-Limit Orders work, please make sure to understand the mechanics of a Limit Order.
To learn about Limit Orders, you can read this support article.
A Stop-Limit Order can essentially be broken down into two attributes: Stop Price and Limit Price.
The Stop Price is the price to trigger a Limit Order.
The Limit Price is the specific price of the Limit Order that was triggered.
Once your Stop Price has been reached, your Limit Order with your defined Limit Price will be immediately placed on the Order Book.
You can choose the Stop Price and Limit Price to be identical.
However, you increase the probability of your order getting filled by setting the Limit Price a bit higher than the Limit Price (for Sell Orders) or a bit lower than the Limit Price (for Buy Orders).
Note: Reaching the Stop Price and Limit Price is no guarantee for your order to get filled. In particular, this can happen when the price drops too fast and your Limit Price is passed over without being filled.