If you are trading Nifty futures, the initial stop loss is 60 points away from entry level. In case of Gaps against entry the stop is jumped by another 150 points. No jokes with such stops. Thats how most of earning traders keep their stops to avoid volatility swings.
Even if we consider stop loss 60 points, we loose Rs.4500 in a single trade. If the stop is jumped by Gaps we may loose somewhere 200 points ie Rs.15000.
9/9/16 around 2.30 Nifty futs 8940, Next session 12/9/16 nifty tanked 140points, 8800 around 10.00.
If I had taken the nifty longs at 8940 + 8900pe(138rs) hedge.
Next session 140 points loss in Nifty futs and 67rs profit in PE gives gross loss of 73rs.
If I had taken Nifty short with 9000ce hedge, 140 points profit in futs and 47rs loss in 9000ce (124-77). Gross profit of 93rs.
If you are ready to lose some profit by hedging, big gaps wont hurt.
Gaps occur mostly after weekends, holidays. Avoid the ovenight positions in weekends, unless your current position is in huge profit and still momentum is favourable for your position. Else use shock absorbers (hedge).
All of the Money Management rules shout that we should not risk more than 1% of our capital in any single trade.
For example, If my risk is 1% and 1.5 lakh per nifty futs.
If My account size is 3lakh, I will trade 2lots in intraday and 1lot for overnight position with hedge. You can not maintain 1% risk in overnight positions. But you can maintain with in 5% with hedging and reducing the lot size to half.
Important point , If you are not a consistent-profitable-Intraday-future trader , Then never think about over night positions.
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