Trading psychology
How do I handle the psychological stress of a black swan overnight gap against my position?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
Handling an overnight gap against a position often involves having a predetermined plan for worst-case scenarios, including position sizing that accounts for potential gap risk beyond a normal stop-loss.
How it works
Because stop-loss orders may not execute at the intended price during a gap, some traders reduce position size on volatile stocks or avoid holding positions through major known catalysts.
An example
A trader expecting earnings overnight might reduce or exit a position beforehand to avoid a gap-down that could exceed their normal maximum loss tolerance.
Risk & limitations
Gap risk cannot be fully hedged with standard stop orders, and extreme volatility events can cause losses larger than planned regardless of preparation.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.