Gary asked me the following question about gaps:
10 o’clock Rule, If you own a stock and it gaps up a buck, 5 dollar stock, at the open on some news. Should you sell it immediately or wait and see
what happens after 10 0′clock?
That’s a great question. That situation is one of the toughest situations to deal with for me. I’ve had so many instances where I had a stock gap up like that and just sink back down. Big gaps often have a way of just bringing out sellers. Of course that all depends on the reason for the gap and how much resistance there is on the chart. But to answer Gary’s specific question I’d say that if you’ve already waited until 10:00 you should just put in a stop around the low of the day and see what happens. 10:00 and 10:30 are often reversal times which you can set your watch by. 
Here are some more general strategies that you can try:
- If stock was just a short term trade and the gap is way past your price target just sell it the first chance you get. You can always jump back in if it has momentum later in the day. The bigger the % gain the more I’d lean towards this strategy. I have a short list of rules posted on my monitor. Very high on that list is ‘take windfall profits!’ You can guess why I had to stick that on my monitor.
- Sell a portion and put a (loose) trailing stop on the rest of the position. One of the things I love to do is get my initial investment back from a position. So in the rare chance that you get a 100% or greater gain sell enough to get your initial investment back and just let the rest ride. That’s a great way to let your winners run with no risk of your initial investment.
- Check the daily or weekly chart to see if there’s resistance nearby. If the stock gapped right into overhead resistance you may want to lean towards taking your profit and running. If it’s gapped to a new high, you may want to lean towards letting it run wild & free.
