Day or Night Session - Which Hold More Upside Potential?

[jswanson 10]

When do you think the most points are accumulated in the S&P E-mini market? During the day session or during the overnight session? To answer this question I developed two simple strategies. Both strategies only go long. They both use a daily chart and a 200-period simple moving average (SMA) as a market environment filter so trades are only taken when price closes above the SMA. Both systems were executed from 1997 to September 2011 with no slippage or commission cost deducted.

 

The Day's Session

 

The first strategy simply buys at the day's open and closes the position at the end of the day. Thus we are capturing the points gained or lost during the day session. The equity curve is a sum of the points gained or lost during the day session since 1997. Below is the equity curve of this trading system.

 

 

The Night Session

 

The night session strategy is just as simple but it opens a new position at the close of the daily bar. It then closes that position at the open of the next bar. Thus we are capturing the points gained or lost during the night session. The equity curve is a sum of the points gained or lost during the night session since 1997. Below is the equity curve of this trading system.

 

 

As you can see there is a clear difference between the night session and the day session. What does this mean to you? There does seem to be an edge in exploiting long positions by riding the overnight session. My hypothesis is because so many active traders do not trade the overnight session, the market will often move in such a way as to lock them out from gains. Most people are familiar with the market shakeouts that rattle the faith of bullish participants, thus forcing them to lose their position. You've seen it where the market moves down to takeout your stop only to reverse in your favor. A painful experience. However, the market does have another subtle trick that messes with your psychology. That trick is making you miss the bull move all together. Yes, the markets are good at trapping you out of a move too!

 

Anyway, keep this night vs. day session study in mind and perhaps you can use it to help gain an edge with your trading.

[cjforex 10]

I explored something similar when I was trading futures. My conclusion at the time was that start of standard day session excluded most major news announcements which contained significant volatility and movement which was mostly absorbed before standard open times.

 

When I shifted to currencies I saw a similar phenomenon when a major event happened in London market, there was little volatility left for New York session. As if the ripples of the big splash had settled down by then.

 

CJForex

[Brookwood 10]

For a while now the Europe open to NY open has had nice smooth tradeable swings, while the NY session is a train wreck. I've been getting up as early as possible:missy:

[zdo 20]

yep, long ago I moved back to the east coast so I wouldn't have to get up so early... but getting up at 4:30 AM almost every day for going on three months now ... may have to move across the pond or develop some new polyspastic sleep cycle... : )

[npc008 10]

I got a idiot question here. Why the price moves during night? I thought the open price will be the closing price from the day before. Are we talking about stocks trade on different exchange here?

[jswanson 10]

I got a idiot question here. Why the price moves during night? I thought the open price will be the closing price from the day before. Are we talking about stocks trade on different exchange here?

 

This study was done the S&P E-mini futures contract which trades in the over night session.

[jackb 10]

When do you think the most points are accumulated in the S&P E-mini market? During the day session or during the overnight session? To answer this question I developed two simple strategies. Both strategies only go long. They both use a daily chart and a 200-period simple moving average (SMA) as a market environment filter so trades are only taken when price closes above the SMA. Both systems were executed from 1997 to September 2011 with no slippage or commission cost deducted.

 

 

The night session strategy is just as simple but it opens a new position at the close of the daily bar. It then closes that position at the open of the next bar. Thus we are capturing the points gained or lost during the night session. The equity curve is a sum of the points gained or lost during the night session since 1997. Below is the equity curve of this trading system.

 

As you can see there is a clear difference between the night session and the day session. What does this mean to you? There does seem to be an edge in exploiting long positions by riding the overnight session. My hypothesis is because so many active traders do not trade the overnight session, the market will often move in such a way as to lock them out from gains. Most people are familiar with the market shakeouts that rattle the faith of bullish participants, thus forcing them to lose their position. You've seen it where the market moves down to takeout your stop only to reverse in your favor. A painful experience. However, the market does have another subtle trick that messes with your psychology. That trick is making you miss the bull move all together. Yes, the markets are good at trapping you out of a move too!

 

Anyway, keep this night vs. day session study in mind and perhaps you can use it to help gain an edge with your trading.

 

I suspect that you probably are completely unaware of the built-in bias embedded in your comments and that you didn't deliberately mean any offense, but you should know that night/day sessions are the equivalent of day/night sessions for non-US based traders. There are people on this board from all over the world and we now live in a global community. A US-centric mindset is so 1970s. And while this may sound harsh, a more expansive mindset might help you make more sense of the markets overall.

 

Begin by trying your own comments on for size. Recount your observations but shift the time frame to treat the European or Asian session as the Day session and then relegate the US overnight session to a place and time where apparently "subtle tricks" are played out. Does that paint a clear enough picture? The European markets are as substantial as the US and it won't be long before the Asian markets out pace both. Then the shoe will be unequivocally on the other foot.

[cjforex 10]

But emini is traded new York day as standard session, and I always remember it referred to as night session.

 

-cjforex-

[cjforex 10]

But I do think this is because news is deliberately released outside normal trading hours for most of the more dangerous news.

 

-cjforex-

[jswanson 10]

I suspect that you probably are completely unaware of the built-in bias embedded in your comments and that you didn't deliberately mean any offense, but you should know that night/day sessions are the equivalent of day/night sessions for non-US based traders. There are people on this board from all over the world and we now live in a global community. A US-centric mindset is so 1970s. And while this may sound harsh, a more expansive mindset might help you make more sense of the markets overall.

 

Begin by trying your own comments on for size. Recount your observations but shift the time frame to treat the European or Asian session as the Day session and then relegate the US overnight session to a place and time where apparently "subtle tricks" are played out. Does that paint a clear enough picture? The European markets are as substantial as the US and it won't be long before the Asian markets out pace both. Then the shoe will be unequivocally on the other foot.

 

This is true. I do have as bias as I trade from America and I'm human thus imperfect. I'm not sure why you would be offended such things. As an American I trade the American hours since that's when I'm awake. I could run the tests on other markets throughout the world. However, I only study the markets that I trade during the hours I trade. I put this study up as a courtesy. I have many studies like this that aid in my developing trading strategies and I thought I would share.

 

Thanks for writing.

[jswanson 10]

Here are some graphs displaying the same study with two ETFs and Apple stock. This overnight edge clearly does not exist for the S&P E-mini futures market only. The Euro ETF example is interesting because it seems to show no significant difference between the two periods.

 

Apple Day Gains

 

Apple Night Gains

 

Euro ETF Day Gains

 

Euro ETF Night Gains

 

Gold ETF Day Gains

 

Gold ETF Night Gains

[jswanson 10]

For those interested in the EasyLanguage code used during this study, you can download it here.

[steve46 12]

Having worked at an "overnight" desk for more than a decade my view is that both RTH (US markets) and Globex are approximately equal in terms of tradable opportunity. Whether a trader can profit from those opportunities depends in great part on whether the system they trade has an edge, AND whether they can manage position size and risk adequately.

 

The only differences I see are that the Globex consistes of multiple markets opening one after another and the news and economic reports are more numerous, so one has to become aware of how various "events" may impact entries and existing positions. To put it bluntly the trader has to keep his/her head in the game a bit more when trading the Globex markets...there is more information to keep track of..

 

My current system minimizes this problem by looking for entry "in between" economic reports and so I am less likely to see whipsaws.

[TheNegotiator 13]

Hmm. Steve, I'd say that I've noticed quite a bit recently that price objectives have been tested either in the Asian or the European session. Fewer algo scalpers in a less liquid market can mean moves just happen. Happens not infrequently on days when many are away from work. Anyway, the other thing is recently there has been a great amount of focus on Europe, so they don't tend to 'wait' for the US open.

[steve46 12]

I said something similar in the first posts of my thread on institutional trading....that didn't go over well....but it is essentially accurate. Personally I think what is going on is that transnational corporate entities (not just banks) are making large bets on the status of the Euro, using not only the futures but also gold denominated in Euro, and as well as Crude Oil. As these institutions make bets they accumulate portfolio RWA and inevitably they have to manage that risk by hedging in the overnight markets. As I mentioned to my students a few months ago, we can expect the US indices to climb to test the yearly open (for the S&P futures that would be 1263.50) and if they can manage it we should see 1300 and perhaps 1370 to 1400 by Christmas. Crude has seen its lows for the year and the Euro its highs (although I am not so certain about the Euro)....Certainly much of the excursion will occur as a result of what we used to term "stealing the trade"..Depending on what happens with Greece I think the last two months of the year may be quite a surprise to investors and speculators alike.

[TheNegotiator 13]

I also have 1260-62ish as high volume on the lower end of the prior broad balance. Although if news out of Europe warrants a rally, I suspect it's proximity will dictate whether it initially holds or not.

[Ziggie 10]

Here are some graphs displaying the same study with two ETFs and Apple stock. This overnight edge clearly does not exist for the S&P E-mini futures market only. The Euro ETF example is interesting because it seems to show no significant difference between the two periods.

 

Your posts are invaluable J. I'm surprised there's not more of a reaction to them. Maybe people already know this stuff - or just don't care because they can't see a way to control overnight risk. The thought occurs to me that options just might do it!

 

One question on your S&P e-mini study - did you use e-mini ETH ( 8:15 - 4:15 EST) or regular stock exchange hours for opening & closing prices?

[steve46 12]

Since my last markets continue to rally as expected past the yearly open at 1263.50

 

Next target for me (as mentioned previously) is 1300 and then 1373, and finally 1400, this would put a nice bonus check in the hands of my colleagues at the high touch desks.

 

Today was a range bound day with a nice "clean up" trade at end of day

 

Although I am attaching just the end of day reversal, the overnight was a lay up with the same range bound entries above and below

 

Good luck Folks

Steve

[steve46 12]

Oh well why not

 

Here is the overnight chart

 

very easy trade

 

I guess the main point (for me) is that astute traders can make money whether you have "gains" in the overnight or not....its a matter of "seeing" the market behavior and identifying patterns that you can exploit..this sequence occurs quite often.

 

Best to all

 

Steve

[jswanson 10]

Here are some graphs displaying the same study with two ETFs and Apple stock. This overnight edge clearly does not exist for the S&P E-mini futures market only. The Euro ETF example is interesting because it seems to show no significant difference between the two periods.

 

Your posts are invaluable J. I'm surprised there's not more of a reaction to them. Maybe people already know this stuff - or just don't care because they can't see a way to control overnight risk. The thought occurs to me that options just might do it!

 

One question on your S&P e-mini study - did you use e-mini ETH ( 8:15 - 4:15 EST) or regular stock exchange hours for opening & closing prices?

 

Thanks Ziggie. Glad you find them useful. I have many more studies that I will be posting. As for your question, I used the "regular" session from 8:30 to 4:15 Central.

 

Yes, options can be a way to hedge against those black swans. Of course the futures market is open in the overnight session and you have a good chance of getting stopped out - which is good. However, holding from Friday to Sunday night might require options as well.

[Ziggie 10]

The problem with holding futures positions taken at the close is that recently reactions against the trend on Globex have been up to 50% of the daily 10-day ATR - with the market often opening the following regular session unchanged from the prior close or even gapping in the direction of the trend. Does this provide opportunity? - of course. But unless you're an insomniac sitting there watching it or a trader outside the North American time zones with a trading plan specifically designed & dedicated to trade this session, its hard to construct a trade plan with futures that buys or sells at the close - at least one that's based on a sensible R:R. That's why I suggest designing an option strategy (for those of us who like to sleep) to take advantage of the anomaly that you so helpfully pointed out J. with your study.

 

I don't want to belabor this - but you meant 3:15 central as the closing time (not 4:15) for the study, right J?? That's when the e-minis close for the day.

[jswanson 10]

The problem with holding futures positions taken at the close is that recently reactions against the trend on Globex have been up to 50% of the daily 10-day ATR - with the market often opening the following regular session unchanged from the prior close or even gapping in the direction of the trend. Does this provide opportunity? - of course. But unless you're an insomniac sitting there watching it or a trader outside the North American time zones with a trading plan specifically designed & dedicated to trade this session, its hard to construct a trade plan with futures that buys or sells at the close - at least one that's based on a sensible R:R. That's why I suggest designing an option strategy (for those of us who like to sleep) to take advantage of the anomaly that you so helpfully pointed out J. with your study.

 

I don't want to belabor this - but you meant 3:15 central as the closing time (not 4:15) for the study, right J?? That's when the e-minis close for the day.

 

That's correct. My mistake!

 

One program I wrote actually does enter in the night session at around 3:15 central. Orders (buy and protective stops) can be executed automatically or sent to the execution severs of my broker. Thus, I can sleep while my trades are being executed.

[steve46 12]

Well I worked a high touch desk for almost 15 years and I would never sleep while my orders execute....but to each his own I suppose

 

This simple concept seems to work well. I use a longer term chart (15 minutes) to find a primary trend for the overnight market. I use a shorter time frame (in this case 5 minutes) to orient my entries to the primary trend. I monitor Europe and Asian throughout the evening. I go to dinner and when I return I usually find one primary entry upon which I can build a position or scalp as I wish)....tonight was quite easy, because of Japan's move to manage the Yen and Barclay's earnings report....both events anticipated by professionals and offering good support for the evening's action (early move down, followed by a reversal after Barclays report)....

 

Ultimately we have a continuing problem as the EU tries to find cash support for its rescue program. Several offers from Russia and China, but both have "strings attached"....ultimately EU has succeeded in kicking the can a bit further down the road (about as far as Christmas holiday I would say) and then we expect a bit of a problem with Spain and Italy...Oh well.

[bobcollett 10]

Oh well why not

 

Here is the overnight chart

 

very easy trade

 

I guess the main point (for me) is that astute traders can make money whether you have "gains" in the overnight or not....its a matter of "seeing" the market behavior and identifying patterns that you can exploit..this sequence occurs quite often.

 

Best to all

 

Steve

 

Hi Steve

Yes . You are correct.Easy trade.

I can see a wolfewave on your chart. And it looks like the price is going to go quite a lot higher.

I will ask our guru, waveslider, to check my reading .

Now I see your method .And I thought you had a secret time based pivot.?/

Modestly

bobc

[steve46 12]

There are few secrets in this world

 

In terms of consistent profitability, these patterns work best in conjunction with both time based pivots and areas of supply and demand. Context is always critical...that is what I have learned to do and what I teach others to do...recognize context.

 

Finally, once a person learns to anticipate these patterns, they still have to execute in a disciplined way....from my observations, this is the limiting factor for most folks. The ability to take the trade.....to stay in the trade long enough for their edge to kick in...and to take profits in a disciplined way.....I think these are the critical differences between the professional and the hobbyist...one makes it work consistently, the other finds it difficult or is unwilling to do what it takes to get to the goal line.

 

Good luck folks

Steve