http://www.hardrightedge.com/realmoney1.htm though i'd share this with some of the new traders out there such as myself. It's good to hear from a pro that we are always vulnerable to this and need to watch out. It's something i fall victim to frequentlly...still. hope the link works.
The claim here is that "However, it's possible to use the overnight markets to your advantage. Most profits are, in fact, created between the close of one session and the start of the next." I don't agree with that. But because I use a predictive model for daytrading (eg.YM) so I've noticed the predictability the previous close (INDU) can give for the next days Open. By this I mean the previous close can tell you whether the Open next day will be gap up or gap down. However I have not kept pre-Open stats and have not tried to set up a trading model for the overnight play. For a better understanding, this really needs comment from any who have put some study into this question or have given it a bit of thought.
I absolutely agree -- I believe it requires a higher level of understanding of the markets, stocks and indicators, though. Some people can daytrade quite well without this knowledge and that's fine. However, I believe the more you observe, the most success you will have with holding overnight. I also agree there are times not to hold overnight and you also have to know when you're being greedy by still holding a position.
I've seen little evidence that the prior days price action in the indices causes any spillover into the next open. Generally gaps (3:15pm cst vs. 8:30am cst) are caused by the following: 1. A large move in either the Nikkei or Europe. 2. An earnings surprise in a key component issue. 3. A re-value off of a 7:30cst economic release, i.e. payroll 4. A sudden geopolitical event. 5. Options expiration. As far as price action from the previous day, nada. I've seen days where the S&P trades sharply higher and closes on the high tick only to gap down a couple of pts. the next morning. Likewise I've seen many continuation days off of gaps. Random.
Alan is one of the smartest fuckers out there. Oozes integrity like a whore sweats stink. Read his book. He wouldn't say it if it weren't so. Did I say read his book?
i backtested the qqqq for overnight changes a while back. there was a bias to open up, but not by much. usually only a few cents.