I was fishing yesterday with some buddy of mine. I'm using a 9' TICA TC2 with shimano baitrunner 4500B all of a sudden a got a hit two of my buddy were arguing. First one shouted at me YANK YOUR POLE!!! and the other one shouted LET THE FISH TAKE IT!!!. So here was I thinking I have my baitrunner with me I let the fish take my bait after like after 3 secs I set my hook but the fish throw up my bait. Which one is better yanking the pole on the first sign of a hit or let the fish take the bait before setting the hook. By the way I'm using chunk bait I know the techniques on eel fishing co'z I caught a few schoolies before on eel but on bait fishing I don't know which is the best or better.

I usually let them run for a couple of seconds to make sure they have it, That always seem to work better for me......but as always there were times I wish I would have yanked right away.

With bait , you usually give them a little time. Sounds to me , based on your description of what happened , your hook point is buried in the bait and not exposed to stick the fish's mouth. That may be as set up or it may be clear when set up but gets buried during the cast. When bait fishing using normal hooks , you usually want a very solid hook set , to the point where it will rip the hook through the bait and into the fish.

Sometimes the hook will "turn" back into the bait and imbed the point of the hook back into the bait. I believe if the fish has a chance to chew up the bait, the likelyhood of that happenning increases so I'd say set the hook immediately.

I used a circle hook and when I put the bait on the hook I make it sure that I can see the other end of the hook on the bait.

using a cicle hook - you NEVER NEVER NEVER set the hook.

If you are using circle hooks the fish will hook itself. You need to apply slow gentle pressure raising your rod tip.

What type of bait ?

I was using mack.

what iwannakeeper said.