What do you do when the STOCKGODS bless you with a gap down? If you are like me, you probably determine your positions size based on the difference between the purchase price and your stop loss divided by how much you want to risk. Let’s say you have a 100k dollar account and you want to risk 1% of your total capital that equals $1,000. If you your purchase price is $25 and your stop is $22, you take $1000 divided by $3 which equals 333 shares, that is the amount you can buy based on how much you want to risk.
Now you get the gap down, the stock opens up at $22, what do you do?
I think at a minimum you should shoot first and ask questions later, either sell 1/2 your position immediately or the entire position and move on. Your stop loss was already pre-determined, and gap downs are part of the game. What happens on the days to come will either make you feel good about your actions or it won’t. But based on the fact that you will only be right on half your trades you should already be prepared mentally to take losses. I know–it sucks.