4 Overnight Trading Strategies 2025

Discover 4 overnight trading strategies in the stock market. In this article, we unveil four trading strategies tailored for short-term gains in the S&P 500. These strategies capitalize on the momentum from the previous close to the next day’s open, boasting minimal drawdowns due to their brief holding periods. Explore how each strategy unfolds, from identifying new-day lows to leveraging market conditions for optimal returns.

The overnight edge in the stock market is well documented.

By using the tailwind from the close until the next open, you can develop some good short-term trading strategies. In this article, I present 4 overnight trading strategies in the S&P 500. The strategies buy at the close and sell the next day’s open. Because the holding period is short, the drawdowns are also small.

(The strategies in this article were written in 2012. The test period is from October 2005 until 2012. We have an updated version of this article on our Substack service that includes the logic in plain English. Alternatively, you can buy the code for ALL our free strategies)

Overnight trading strategy number one:

The first strategy buys when it makes a new n-day low and has an additional two variables. We go long at the close and exit at the open the next day.

P/L in %	#trades	#wins	Avg.
8.4	35	29	0.24

The criteria about the close must be above the 200-day moving average is important. The equity curve gets a lot worse without it.

Overnight trading strategy number two:

Strategy number 2 is also when S&P 500 makes a new n-day low. Just like in strategy number 1, there are two more variables.

Here are the results:

P/L in %	#trades	#wins	Avg.
12.6	90	64	0.14

Most trades are below 0.4 (criteria 3) anyway. Here is the equity curve for this strategy:

This is a pretty nice equity curve! The profit factor is 2.6.

What happens if we turn it upside down and go short? It gets a lot more erratic. There is a small negative edge, but not tradeable. However, nice to know, though (not to go long these times).

Overnight trading strategy number three:

Strategy number 3 uses three variables, all of different types:

The results are summarized in the table and graph:

P/L in %	#trades	#wins	Avg.
13.57	59	46	0.23

The equity curve is just as upward sloping as the one above and has a profit factor of about 3.8. Here is the annual return trading 490 000 USD per position:

Overnight trading strategy number four:

Strategy number 4 has, just like all the three previous strategies, three variables. This version is a slight variation of strategy 3:

P/L in %	#trades	#wins	Avg.
36.55	168	109	0.23

The result is quite impressive. Why is it good? Probably because the market is short-term oversold and gets a quick bounce up from a bad day.

If holding to the close instead of selling at the open, the total P/L increases to 80% but the equity curve is a lot more erratic.

From previous research, I know there is a good chance of filling the gap if SPY opens down and is short-term oversold. So I put in a new twist: if SPY opens lower (the next day) than -0.1%, simply hold until the close (but exit at the open if opens higher than -0.1%). This boosts the strategy:

P/L in %	#trades	#wins	Avg.
55.81	168	129	0.33

Here is the profit curve of the last twist to the strategy:

In the last years, it has paid off to hold this position until the next day’s close even on days when SPY opens up. But this was not the case earlier.

———————————–

If you would like to have the Amibroker and Tradestation code for this strategy plus 70+ other free trading strategies published on this website, please click on this link:

For more trading strategies, please click here:

• Free trading strategies
• Monthly trading edges (subscription service)

How do overnight trading strategies minimize drawdowns and why is this important for traders?

Overnight trading strategies are designed with short holding periods, reducing the time exposure to market fluctuations. This characteristic helps in managing risk by limiting potential losses, which is crucial for traders aiming for consistent profits. Most strategies hold from today’s close or until tomorrow’s open or close.

What are the key results of the second overnight trading strategy discussed in the article?

The second strategy involves buying when the S&P 500 hits a new n-day low with specific criteria. It yields a profit of 12.69% with a win rate of 14%, showcasing a promising equity curve with a profit factor of 2.6.

What additional insight does the article provide regarding the market behavior when employing the fourth strategy?

The article highlights that recent market trends suggest holding positions until the next day’s close, even on days when the market opens up. This observation contrasts with earlier market behavior and adds a valuable layer of understanding to the strategy’s potential profitability.

How can overnight trading strategies help traders develop short-term strategies with minimal drawdowns?

Overnight trading strategies are known for their relatively short holding periods, resulting in smaller drawdowns. This makes them attractive for traders seeking to manage risk. That said, adverse news while the exchange is closed might lead to losses, but mainly in the single digits.

Why is it important for the close to be above the 200-day moving average in the first strategy?

Including the criteria that the close must be above the 200-day moving average is essential for the strategy’s effectiveness. The equity curve is significantly affected without this condition.

What are the results of the first overnight trading strategy presented in the article?

The first strategy, which focuses on buying when the S&P 500 makes a new n-day low with specific criteria, has a profit of 8.43%, with a win rate of 29%.