In trading you should always expect the unexpected. Because of this, you should be aware that nasty surprises can come along at any time. Today I suffered my biggest loss on a single trade for more than three years when a stock gapped down through my intended stop level.
The stock in question was Ixia ($XXIA). This had been in an uptrend since giving a system signal in mid-June, and up until yesterday was profitable. My trailing stop was also higher than my initial entry price. In theory then, barring any form of gap occurring, if price fell back and hit the trailing stop the position would be closed for a profit.
Well the company decided to release some news immediately after the close last night which caused the dramatic drop. The end result was a loss far greater than my initial risk.
Some traders I know do not hold positions open through earnings - this is a discretionary rule. In my own case, I let price determine whether I get in or out of a trade, so I do not worry too much about holding through earnings. If you were one of those traders, then even that would not have saved you on this occasion, as the company released a preliminary update ahead of their earnings release due at the end of the month.
This again just shows why any trader should try and take into account the unexpected. Gaps like this can and do happen. Ensure that you use robust risk parameters and position sizing at all times.
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