The overnight trading action of the S&P has a decisive edge. Did you know that a lot of the gain of the S&P happens at night? This provides a unique opportunity to build a trading system.
The overnight edge of the S&P is something I've written about before. If you're not familiar with it, you can check out the article, "The Overnight Edge."
Let's update this market study to see how the overnight edge has held up over the past couple of years.
As a quick recap, I've constructed a trading system that will test the overnight edge by buying at the current close and exiting the trade of the next day's open. Thus, our trade is exposed during the overnight session. Likewise, I've tested holding a trade only during the day by buying at the open and selling at the close.
Before getting to the results, both tests were executed from January 2, 2006 to February 9, 2022 with no slippage or commission cost deducted. The symbol used was @ES.D.
Below are the two equity curves generated by the study. The one on the left-hand side is taking all trades during the day, and the right-hand side is taking all trades during the night session:
Day Session
Night Session
There is a difference between the day session and the night session. This difference is even more dramatic when adding a simple moving average regime filter and only trade trades during a bull market.
We want to go long during a bull market based on what we know about the E-mini S&P market. We also want to buy during a pullback.
Day Session With Regime
Night Session With Regime
Recent Performance Of The Overnight Edge
Let's take a closer look over the past couple of years. Below are the same tests performed from February 11, 2019 to February 9, 2022 with no slippage or commission cost deducted.
Day Session With Regime Recent
Night Session With Regime Recent
It really looks like the overnight edge is holding up well. When taking trades at night during a bull market, that equity curve looks like a trading system. But remember, this is a market study, not a complete trading system. These strategies have no stops and take a new trade every day.
What About Other Markets?
I took a look at the other major stock index markets, and they show similar behavior. Below are the results from taking long trades during a bull market in the overnight session. Click on the images for a larger view.
NQ Night Regime
EMD Night Regime
YM Night Regime
What Can I Do With This Info?
I think this information clearly points to a market edge. This would require holding a trade during the overnight session. What this study does not say is how to do that. Should you enter after the market closes? Maybe entering in the pre-market. Or, is holding all through the night the way to capture most of the points? Well, that will depend upon the market and the strategy you have.
Below are a few articles that point you in this direction to give you some ideas.