Trading

U.S. Stock Market Makes Most of Its Moves Overnight

I first came across this phenomena at the Overnight Edges website. I saw it recently again at this blog article at Breakpoint Trades.com. To take advantage of this, Overnight Edges has a subscription service that provides probabilities of overnight moves based on historical action as well as seasonality.

Phenomena

  • The market makes most of its move during the overnight session (from 4pm close to 9.30am open), rather than in the day session (from 9.30am to 4pm close).

Statistics

  • Assume you trade 1 share of SPY every day from 1994 to June 30, 2012
    • Hold trade over the overnight session, you would make $183.86.
      • Losses in 3 out of 18.5 years (2001, 2002, and 2008)
    • Hold trade over the day session, you would lose $94.10.
      • Losses in 11 out of 18.5 years.
      • During bull markets, day sessions showed mild upside or sideways chop.
      • During bear markets, day sessions performed horribly as people liquidated.
  • Assume you trade SPY every day from Aug 2, 1995 to Aug 2, 2013, starting with $100K
    • Hold trade over the overnight session, you would make $400K
    • Hold trade over the day session, you would lose $40K

Reason for this Phenomena

  • Overnight Edges gave a reason for this phenomena. Basically in a day, the market is open 6.5 hours, and is closed 17.5 hours, while most market moving news events are announced outside of market hours. Hence overnight traders are rewarded a premium for taking overnight risk.

-END-

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