One of the most common questions I get asked about overnight edges is whether there is a large enough opportunity in overnight trading to make it “worth it”. I addressed this somewhat in a blog post on 9/11/12 where I made available a spreadsheet that allowed traders to input certain assumptions and determine whether Overnight returns would add enough to their other strategies to make it “worth it” for them. Of course any assumptions used on that spreadsheet would be entirely hypothetical. I can only say that I’ve been trading Overnight strategies since 2005, and have certainly found my efforts to be worth it. This is something I discuss more in the About section of the site.
It seems almost inconceivable to me that someone would think I would utilize an overnight approach for many years and put great efforts into building a site dedicated to overnight trading if I didn’t strongly believe that there were worthwhile opportunities and edges to be taken advantage of. Still, I do get many questions about it. So in anticipation of those questions I decided to open a separate trading account dedicated only to overnight action.
I placed $10,000 in a futures account in August shortly before opening Overnight Edges. I chose $10,000 for the following reasons 1) Round numbers make math easy. 2) I needed enough to be able to comfortably trade 1 ES contract overnight and withstand some possible drawdown. (1 contract per $10k is not a “suggested” size. Traders need to determine their own risk tolerance, and for some this may be considered aggressive. Additionally, some traders may prefer to adjust their position size based on volatility, trade confidence, or other factors. I decided rather than get into complex money management approaches for this account I would keep it as simple as possible. 1 contract per trade.) 3) I did not want to tie up a lot of money in this account, because, as I said, it is entirely dedicated to overnight trades. I have always preferred to mix overnight trading strategies in with others strategies in my accounts. One of the great advantages of overnight trading is that it does not tie up capital that could be used for daytrading or sometimes swing trading strategies. It also offers strategy diversification since my overnight trades have traditionally seen low or no correlation to my other strategies. By creating an “overnight only” account I eliminated all these other great advantages. Therefore, I preferred to keep it small. Still, a separate account was necessary to demonstrate the validity of the ideas and neatly track returns. Prior to opening this account, it was not possible for me to neatly segregate my overnight returns from my other strategies in a verifiable way.
So how did the account do? It rose 22.5% between the mid-August launch of Overnight Edges through the end of December (about 4 ½ months). It did this with just 19 trades. And it never held a position past the open. Below is an equity curve showing growth in the account.
A spreadsheet with a full list of trades and all supporting account statements can be found lower down. Before I get to those I should mention a few things. Past performance is not necessarily indicative of future returns. There is no assurance that these methods will remain profitable in the future, or that you will not lose money if you try and incorporate them. I do not show my results to brag or even suggest they are repeatable. But I do believe they show the kind of potential that overnight trading provides. My approaches have served me well, and they most certainly have been “worth it” over the years. Whether you are able to find value in the in the information and methods discussed at Overnight Edges I cannot determine. But if the idea of using a quantitative decision-making approach appeals to you, and you think the overnight time frame might suit you, then I would encourage you to take a trial and explore Overnight Edges further.
For simplicity I have laid out all the trades executed in that account in a spreadsheet. Trades include both date and time. You’ll note that all of the trades took place outside of when the NYSE was open, often near the open/close of futures trading. Positions were never held during the day. (There were 2 trades around 1:15 EST after Thanksgiving and on Christmas Eve when the market closed early.) Those are real executions shown in the spreadsheet. All trades were announced ahead of time in the Overnight Edges Trade Discussion Room (or on the Trade Discussion Room page if the room was closed that day).
You may also download the spreadsheet using the link below.
I have also provided links to screenshots of my account statements for this period of time. (Personal information is blacked out.) This may serve as verification of the results. Results include slippage, commissions, execution errors (I missed one trade and had to enter when futures re-opened), an unfortunate stop-out, and everything else that goes into real-time trading.
I do not intend to maintain this account indefinitely and am not inclined to continually discuss my personal account values. As anyone who has followed the blog closely should be aware, I always disclose my trades (or non-trades) in the Overnight Overview each day. Trades I take (and some close calls I don’t) can all be found using the “trade result” tag.
I’d encourage people who are interested to follow me each day at the blog. In addition to trade discussion I also provide research related to overnight trading most days. If you sign up for the Overnight Edges email list you can have these daily Overnight Overviews delivered each afternoon free of charge.
Often the best trading opportunities and most significant edges are found when traders take an approach that is different from what “everyone else” is doing. Overnight Edges is the only quantitatively oriented site dedicated entirely to profiting when “everyone else” is either sleeping or at least ignoring the market because it is “closed”. I strongly believe there is sizable opportunity in overnight trading, I’ve done well with it myself, and I would encourage traders to seriously consider whether an overnight approach could be beneficial for them.