Monday Morning Gap Ups

Over the weekend, we sent our subscribers our Trade of the Week, Biogen (BIIB). Our target entry for this trade was $291 (signified by the circled yellow area), right as it was breaking resistance following a huge earnings beat. With some positive articles on the stock over the weekend, it sounds like we weren't the only ones looking to buy this one. Off the open Monday morning, it gapped up $10 from $290 to $300, $9 higher than our target entry. In trading, your price is the most important part of the trade. It defines your risk, maps out how favorable your reward may be, and depicts how early or late you are to a trade. When a stock gaps up that substantially over our target entry price, if we don't absolutely love it,  we let it go. Granted, we may miss out on huge gains in the stock, but our mantra has always been "live to see another day."

When we mapped out this trade, we planned on a stop-loss at $285, giving us $6 risk. We were looking to make $30-50 on the trade, between a 5-8:1 risk/reward. If we bought at $300, do we give it $15 risk looking to make $20? You can see how drastically skewed our risk/reward becomes with the gap up. So, our advice, don't chase a stock if it drastically alters your game plan & risk/reward. If it's only a subtle difference then depending on how much you love the setup, you make the call. But in a case like Biogen, let it go.