Should I Hold This Position Overnight?

Here are a few steps one might take in addressing that question.

First and foremost, do I have a target and a stop? Until you can answer this in the affirmative, go no further. Does my trading plan allow for me to hold overnight positions? If the answer is no, then the answer is no. Any revisions to a trading plan should be made in the quiet solitude of the weekend or preferably at month's end, and certainly not with the intention of affecting an existing position or while contemplating a trade. Changes to a trading plan are to be made from a position of objectivity; not on the fly.

Is the position too large to hold overnight? Based on margin rules? Based on maximum potential risk on a given trade or on a given day? Of course there is always the possibility of scaling back to smaller size and closing a portion.

However, say you've addressed the above items and there are no such constraints. What is the real issue at hand? The potential gap up or down (possibly news or event driven) that you may face the next morning. Once the market is open, you have plenty of techniques to help you decide what to do. It's the gap against you that you have limited control over.

To attempt to avoid "monster" gaps against you, your plan can include a rule not to hold (long or short) over earnings announcements and a rule not to hold into a major press release or scheduled conference. The same is true for Federal Reserve Board speeches, major economic reports, etc. Consider whether you will hold over weekends and/or holidays, whether option expiration is an issue, and any other rules that might trigger automatically closing a position. (One thing we like to do is trade the indices during the peak of earnings season. This way although of course indices can be volatile, we don't have to worry about the surprise tech stock getting cut in half with us in it!)

Also, remember it's not the news; it's the crowd's perception of the news that matters.

Based on the current daily pattern in this stock are we likely to gap up, down, or open neutral? Based on the pattern of the indices, are we likely to open up, down or neutral? Are you profitable in this trade yet? How far is the primary target? Where will the gap against you land you from the standpoint of support or resistance? What about the moving averages on various chart timeframes? All of these are valid questions. There of course is no perfect magic bullet answer. But asking all of these questions will keep you focused!

Of course all the plans and all the rules in the world will not help you if you do not stick to them. And always remember the suggestion of closing half and holding the back half, which is very effective in mitigating risk. It is systematic, realistic and allows you to participate in larger moves without a high degree of exposure.