So, as promised, I did my testing. I figured out the cleanest way to test holding SPY 100% of the time, come thick or thin, or holding a portion (or all) overnight only, buying at each close and selling at each open, was just to have an allocation of starting percentage of your portfolio to each one. So, a 100% to SPY all time would mean you start with 100% of your portfolio and let it ride all day and night every day and night. 100% overnight SPY would be investing none of your portfolio in SPY, other than you'd buy 100% of your account value in SPY at each day's close and then sell 100% at each mornings open, rinse and repeat. a 50/50 allocation would mean you put half in SPY and left it there to let it right and half you would buy each day at close and sell each morning at open. I ran the numbers back from SPY inception, starting 1/29/1993. You know what I found? If you had put $100 in SPY and just let it run, a starting $100 account would have grown to $1630.80, a 10.32% IRR. Max drawdown was 55.19%. If you had done 50/50, a starting $100 account would have grown to $1670.81, a 10.42% IRR. Max drawdown was 35.14%. And if you had used 100% of your account to buy SPY at each close, and sell at each open, your $100 account would have grown to $1699.61, a 10.51% IRR. Max drawdown was only 32.79%. That's right - this is not even holding the SPY at ALL during any day sessions, only buying at the very end and selling at the very beginning. And you indeed come out ahead this way - both more earnings, but, more importantly, a good bit less drawdown. So, Overnight, Relentless, you guys don't have to listen to me. But when a dark, shadowy figure, hidden in the shadows of a ricksaw, whispers out to you on some cold, rainy day, "So easy once again making free overnight money. Don't waste your time trying to scratch out meager gains during the U.S. session. Just buy the cash close get some sleep and wake up to profits. The range will continue to dry up during the U.S. day session.".... you should motherfukin' LISTEN...
https://justinczyszczewski.com/are-most-market-gains-overnight/ This was posted before on ET....can't remember who it was.
Thanks for posting - very interesting. I was just reading about “overnight drift”. https://libertystreeteconomics.newyorkfed.org/2021/05/the-overnight-drift-in-us-equity-returns.html I was thinking of trying to execute this mechanically but imagine there must be a way to improve this - perhaps with a filter using moving averages or RSI
Yep yep, you bet atxnfo. Thanks for the link, will check it out. Oh, no doubt there are many ways to improve this, more testing to come. But knowing you can not only come out somewhat ahead investing ONLY in the overnight market, and have a SIGNIFICANTLY lower drawdown, is huge. More to come!!!
Lots of commissions and 40% taxes every year Meanwhile, buy and hold and you don't even have to ever pay taxes.
Your first part regarding commissions is true, but with commissions being almost nothing, or actually nothing, these days not sure how much that would matter. Your second point is very true, I am a big fan of not paying taxes.
If you go flat on the Open you'll miss out on the gains happening in the day session, too. In a trending market you will usually have about 60 % of the day sessions closing higher on the day. https://www.elitetrader.com/et/threads/midnight-rally.47055/page-118#post-5362356