How do you manage gap risk on your overnight stock positions?

Visaria said:
By thinking about what could happen and making sure that your position is of a size that any loss from that event is not going to destroy your account.
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Good points, good gap wisdom+ o poster TraderJ.
a] Study all data [a]AIG,, BAC,[c] C have a huge downtrend on 10 year chart.[SPY is up on 10 year candlechart.]NOT to mention much ,Jim Rogers made some bearish bank comments again this year; amazing amount of negative fundamentals in IBD + news against big banks; WFC may do well in a bull market. Suprise can happen overnite anyway-I am suprised that sector is not gapping down already Single stocks are 2 risky for me;sectors or stuff like DIA may help.

Not a prediction wisdom is profitable to direct. Dow [DIA] can be manipulated,IBD warned

[d] Stuff like DIA does gap overnite; but like Rich dennis warned ''there is an insurance premium in overnite holds''
 
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If being a bit more specific... I need to reduce size on each position until comfortable given the possibility of a large (10-80%) gap against.

I was thinking a quarter of the account per position, but an eighth would in fact be more my comfort level.

In the extreme case 1/8 * 80% be would be a 10% loss on the account. Maybe a once per decade event if actively trading.
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Also because of that reason I have split my account into 30-50 single stocks which I swing trade. With my leverage (1:10) and fully using it, I wouldn't feel comfortable with less diversification.
 
alexkofler said:
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If being a bit more specific... I need to reduce size on each position until comfortable given the possibility of a large (10-80%) gap against.

I was thinking a quarter of the account per position, but an eighth would in fact be more my comfort level.

In the extreme case 1/8 * 80% be would be a 10% loss on the account. Maybe a once per decade event if actively trading.
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Also because of that reason I have split my account into 30-50 single stocks which I swing trade. With my leverage (1:10) and fully using it, I wouldn't feel comfortable with less diversification.
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How do you manage to obtain 10x leverage swing trading equities?

Assuming no options and no etfs.
 
In stocks trend trading way to go, buying dividend producing and optionable stocks, so I can get an extra 10% more, if selling short in downtrend, non-dividend optionable stocks, diversify-never have more than 5% in any one stock. So when stock(s) do gap, you not wiped out, and might be a possibility of keeping the gapped stock if it pays high enough dividend and was bought low enough. We will have more 2008/2009 and can get in cheap on stocks buying good dividend stocks for 401ks.
 
Sure i would exspect more 2008 bear trends,USO got there bear [200 dma]early],LOL

But just like Bull trends tend to gap up[Wisdom is profitable to direct; not a prediction];
Bear trends like USO gapped down againpast 24 hours] even if few shorts covered recently . So when Rich Dennis said it so well to jack schwager; ther is an insurance premium in ovenite holds[position w swing trades/Invests
 
JTrades said:
For those of you who regularly hold short term stock positions overnight, how do you manage the risk of large gaps?
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I use options so there is less money on the line and the risk/reward is clear. By reducing the amount of capital that is held overnight there is less capital at risk. So I would not have overnight the whole account in options. I just set aside for situations that I am concerned about gaps (earnings announcements). I pay close attention to the expected move on the options and the ATR. In all, I consider the risk and the rewards and try to limit the risk. Sometimes I will use vertical spreads to further reduce risk even though there is potential gains to be missed. Sure a big move can wipe out an option position but the chances are more money would have been lost if shares were held instead. At times I won't hold the position if it does not fit risk profile. It is important to know the risks and be comfortable with them.
 
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