Reducing Gap Risk (Stocks)

[tradermike99]

Hi guys,

How do you reduce possible gap risks as much as possible at swing / position trading?

My screening criterias are:
1. P/E ratio profitable
2. Avg. Vol: Over 500k

Do you have other ideas? Or how do you screen stocks?

Thanks!

Mike

 

[Snuskpelle]

Options? If you're in liquid names that is.

For illiquid names an alternative is just accept the gap risk and position size accordingly.

 

[jharmon]

Go with liquid stocks. Use index membership.

Avoid early stage biotechs. Avoid early stage biotechs. Avoid early stage biotechs.

Backtest it.

 

[lindq]

Hi guys,

How do you reduce possible gap risks as much as possible at swing / position trading?

My screening criterias are:
1. P/E ratio profitable
2. Avg. Vol: Over 500k

Do you have other ideas? Or how do you screen stocks?

Thanks!

Mike

Market risk you can't easily avoid. Don't concentrate holdings in one sector.

Company risk: Strong EPS, EPS growth, vol over 2 million, strong sector, watch the calendar for company events/earnings/announcements, no pharm or biotechs.

You will sometimes get wacked. It's part of the business. Just don't let them become investments.

Best of luck.

 

[tradermike99]

@Snuskpelle @jharmon @lindq

Thank you guys! Really appriciate this answers, wish you good trades ahead.

 

[comagnum]

Hold only the big name stocks, the most actively traded - those on the SPX100 for example are safer than most. Get out prior to earnings. Don't hold the smaller biotech or drug stocks - they gap the most.

Over the long run, gaps in your favor should far outpace those that go against you if your buying stocks when they are strong. Position sizing is everything. Good risk mgmt is job #1.

 

[tradermike99]

@comagnum Thank you