Overnight Trading Strategies: Nighttime Trading Tactics and Insights
Since 1993, all the gains in the S&P 500 have come from owning the index from the close to the open the next day. We see the same tendency in the gold markets. Thus, we can develop night trading strategies to take advantage of this bias. At the end of the article, we update the results of an overnight trading strategy we published in 2014.
By night trading we mean holding positions overnight — from the close of the trading day until the open the next day. In other words, night trading is the same as overnight trading.
We backtest the following:
The official market hours for the stock market are 0930 to 1600 Eastern US time. Thus, night trading owns the “stock market” from 1600 until 0930 the next day. We refer to the stock market as the S&P 500 or Nasdaq.
After-hours trading is when you buy and sell between the official market hours.
Overnight trading is not like that. You place orders at the close or just seconds before the close. You sell at the open the next day or put in a limit or market order at or very near the opening bell.
As you’ll learn below, some markets rise during the night period. This is something you can take advantage of when you are building strategies:
You are looking to find edges from holding from the close to the next open. The time frame is short, but there are reasons why this should work.
Let’s have a look at this chart that shows the accumulated returns of owning the S&P 500 from the close to the open the next day since SPY’s inception in 1993.
You can find more info about this trading strategy here:
https://www.quantifiedstrategies.com/overnight-trading/