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My bike runs fine when I'm in the small ring in the front and either of the two cogs closest to the bike in the rear casette. However when I shift down any further, the chain keeps hopping in and out of the cogs. Does the rear derailleur need to be adjusted? Or since this is a new bike, is it just the chain that needs to be stretched and will get better over time? The guy at the shop said there would be some racket due to the chain being stretched but am not sure if this is normal. Sorry if this sounds confusing :(
 

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Stop by the LBS and they should be able to make a quick adjustment to fix it. The bike should have been setup to shift as smooth as possible, but the cable might stretch a little bit and need to be tightened, not that it won't work until the cable stretches.

You could try turning the barrel adjuster on the rear derailleur a full turn (turn to the left, like you're unscrewing it) and seeing if that helps. Might need more than one turn. Here's a good tutorial.
 

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since this is a new bike, is it just the chain that needs to be stretched and will get better over time? The guy at the shop said there would be some racket due to the chain being stretched but am not sure if this is normal
Chains do indeed appear to "stretch" over time, but there is no way that you've put any appreciable amount of chain stretch on a new bike, and even if you somehow did, it wouldn't matter until you were replacing parts. Cables on the other hand do "settle in" over the first 100 miles or so, and that can make a new bike start shifting terribly.

Did your bike come with a free 30-day adjustment? This is why. Of course, if the shop really did mention chain stretch as a culprit, I wouldn't necessarily trust them. The only tools you need are your hands (and possibly a watch with hands if you can't remember which way is clockwise...). There are a variety of tutorials out there; here's another one: http://www.parktool.com/repair/readhowto.asp?id=64 (just scroll down to the "Checking the Rear Indexing Adjustment" section).
 

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notwist said:
My bike runs fine when I'm in the small ring in the front and either of the two cogs closest to the bike in the rear casette. However when I shift down any further, the chain keeps hopping in and out of the cogs. Does the rear derailleur need to be adjusted? Or since this is a new bike, is it just the chain that needs to be stretched and will get better over time? The guy at the shop said there would be some racket due to the chain being stretched but am not sure if this is normal. Sorry if this sounds confusing :(
I have to assume the shop guy isn't a total moron, and that you mis-heard what he said. But you never know. No, the chain doesn't need to stretch, and even what's called chain stretch isn't really stretch. It happens very slowly, and wouldn't account in any way for the problem you're having.

He probably said (or meant) what is called cable stretch, which is what you've experienced. To stop the chain from trying and failing to jump up onto the next biggest cog (what you call 'hopping in and out') the cable that pulls the derailleur that makes the shift needs to be tightened. This is a very common adjustment, easy, and something you need to learn to do.

Look where the shifter cable enters the derailleur in back. See that knurled-looking nut right as it's going in? That's the barrel adjuster. To tighten the cable, face the derailleur from the rear and turn that nut counterclockwise. I'd start with a half turn. Check the shifting. If it still doesn't work right, another half turn. Then keep trying in quarter turn increments till the shift 'takes.' Simple.

This is a VERY common adjustment, and has to be done periodically.
 

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what most people are forgetting here is that you need to start the diagnosis and repair of this problem in the smallest cog. shift the derailleur all the way down, and then go up one gear. check and see what happens...if it's not quite making the shift, try the 1/2 turn counter-clockwise on the barrel adjuster. depending on how loose the cable is, it could take a couple of turns. if this fixes the problem, i like to turn the barrel adjuster all the way in, and undo the anchor bolt, then take up the slack there. also check to make sure the derailleur hanger isn't out of alignment...take a look at the derailleur from directly behind the bike, the cage should be straight up and down...if it's bent slightly inwards toward the wheel, have the shop fix it before you ride again. remember, most bikes have replaceable hangers these days. they're soft aluminum and bend easily (on purpose), this saves the frame if you crash. anytime your bike falls over on the right side, check that hanger before you hop on and ride. if you don't...sooner or later you'll end up w/ a bent hanger and the first time you shift in to your biggest cog the chain might jump over the cog and into the spokes, possibly ruining your rear wheel.
 
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