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You got it right!

The computer "knows" because of the different order types. A buy order with a limit only buys at the limit price or lower (ie. take profits and close position @ $70).

Be careful with the stop limit. I use Datek and stop limits require 2 prices (they can be the same). The first price is the "activation price" meaning that your order becomes active when that price is achieved. In this example, $120. The second price entered is the limit which can be the same or higher. Once this is hit, your order becomes a normal limit order so it is filled at $120 or better, also lower in this case I believe. My understanding is that if the price then goes higher than $120 before the order is filled, you won't cover because that would violate the buy limit. Normally, your stop limit orders get filled at the stop (immediately).

This is my best interpretation so I will gladly defer to a more knowledgable person. To prevent this confusion, I personally use stop market orders to protect my shorts (literally and figuratively). In this case I would set a stop market with an activation price of $120, meaning as soon as the price hits $120, bail out regardless. Potentially, I could get a fill at a much higher price, especially on a gap open. Generally, I know my loss tolerance and once I get there, I head for the exits.

Hope this helps,

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