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So, what does one do when a stock opens the next day and it's at your stop? So, Monday morning we see the market's in a bit of a funk, the futures are a bit red, and sure enough GLXX opens at 19.70 and starts inching lower. When a market opens sour and we're already underwater at the opening bell, we take the mechanical stops off.

We once wrote a little piece somewhere about keeping your losses to a minimum since letting a losing trade get wildly out of hand will cost you dearly. So we got a question we'd like to share with you:

"I agree in opinion with your concept of bailing out of a trade quickly in preparation for it snowballs into something ugly. I think that is why we use stops. But I have a question nearby that. What do you do if you buy a stock on Monday and it ends the day right as respects where you it. But then Tuesday it opens down 50 cents and falls from there, hitting your stop. Do we let the stop take over?"

What a good question and the defence is going to need some explanation. We don't usually like to get too involved with the first half hour of trading. It's that first opening 40 minutes of trading where the overnight market orders are getting processed, where the morning's economic data is getting "knee jerked around" and overall it's usually a good time to avoid.

So, what does one do when a stock opens the next day and it's at your stop? In general terms the best thing to do is ignore your stop. Why? Again, the market is at it's most volatile during that open, and more times than not the first few moves are not indicative of what's going to happen for the course of the day. Even if it is, we usually see a decent make redundant once the initial move takes place.

In other words, let's use an example. You buy GLXX on Friday. You pay 20 for it. But Friday night it closes at just 20.02. You had set a tight stop at 19.70 . So, Monday morning we see the market's in a bit of a funk, the futures are a bit red, and sure enough GLXX opens at 19.70 and starts inching lower. In 5 minutes it's 19.60. If you honored your stop, you just lost 30 cents.

Now let's say it's going to be a bad day. ex post facto trading down to 19.60 GLXX and gets to 19.90 but then starts fading. The market is soggy. It's now 10:10 am and GLXX is sliding back down. If it hits 19.70 we'd take it off the table and bail. Yes, you took a loss, but it's just 30 cents and at the end of the day GLXX is at 19.50. You did well.

Now let's say that instead it's the kind of day where the morning's funk wears off. Again, you at 20 its opening at 19.70 it trades down to 19.65 and then "levels out". By 10:10 the market is perking up. The DOW just went green. The NASDAQ is perking up. GLXX is now 19.85 and inching higher. You hold it and find that when the final bell rings, GLXX is at 20.15. You won.

The key was to not get stopped out at the open in either case. When a market opens sour and we're before all underwater at the opening bell, we take the mechanical stops off. We want to see if it's really going to be a bad day, or if it's just morning funk, and you cannnot know that until some time passes. observably you don't want this to get out of hand! We mean if it opens at your stop and then ten minutes later it's down to say 19.40, we'd probably sell the first meaningful drum out and wonder what the heck went wrong! But you understand what we are saying. We rarely if ever will sell out at the open. You can usually "do better" by waiting for a bounce, and there's ever and anon a bounce. If the spot holds and the market is warming, chance are you'll end up back in the green or at least, down just pennies. It's not easy to watch, but getting taken out on a gap down will usually find yourself kicking yourself.

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