tf/swingtrading•Posted by u/swing_king•4 days ago•1 min read

How I manage overnight positions — my anti-gap system

Morning gaps are a swing trader's nightmare. Here's my system after 4 years:

Position sizing: never more than 3% of the account on a swing. If I lose the max historical gap, that's -4.5% of the account = survivable.
Gap-adjusted stop loss: I set my stop below support + the average gap margin of the stock (calculated over 90 days).
No swings before earnings, FOMC, CPI: absolute rule. I close everything 2 days before.
Hedging: if I have 3+ long positions, I buy a mini SPY put as insurance.

Since applying these rules, adverse gaps cost me 0.5% of the account on average instead of 2-3%.

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trader_mike·3 days agoedited

Rule #3 is gold. I lost $4,500 overnight holding a swing position the day before a surprise CPI print. Never again.

options_queen·3 days agoedited

The SPY put hedge is interesting. What delta and expiration do you use? And doesn't it eat too much into P&L during quiet months?

swing_kingOP·3 days agoedited

SPY put 5% OTM, 2-week expiration. Costs about $150-200. It's insurance, not a trade. If it expires worthless that's great — it means my swings worked.

algo_trader_42·3 days agoedited

How do you calculate the "average historical gap" for a stock? Do you have a script or do it manually?