July Select Stats – Overnight Holding vs Intraday

Aug 7, 2008: 2:29 PM CST

I’m adding a new feature to the research side of the blog, which asks the question, “Would it have been more profitable to trade exclusively intraday or to hold overnight exclusively or some mixture?”

Essentially, the question asks ‘what might you be giving up if anything by not holding a trade overnight’?

To run these statistics, I created a simple Excel file that takes daily stock data from Yahoo Finance and then has two formulas:

The “hold overnight only” formula is the following:  Today’s Open minus Yesterday’s Close

The “trade intraday only” formula is the following:  Today’s Close minus Today’s Open

I have hand-selected popular stocks and ran them through these formula to see what the difference would have been.  Let me know if you have suggestions for further analysis.

DIA – Dow Jones ETF… a proxy for the broader market (and my favorite ETF to trade).

DIA Monthly Change: $1.32 (1.17%)

Overnight Only:  $1.61 (1.43%)
Intraday Only:    -$1.33 (-1.17%)

Google (GOOG): Monthly Change:  -$45.83 (-8.82%)

Overnight Only: -$20.08 (-3.86%)
Intraday Only:   -$32.59 (-6.07%)

Apple Inc (AAPL): Monthly Change: -$5.28 (-3.22%)

Overnight Only:  -$7.57 (-5.28%)
Intraday Only:    -$0.92 (-0.53%)
(see explanation below)

Exxon-Mobil (XOM): Monthly Change:  -$7.44 (-8.47%)

Overnight Only:  -$0.95 (-1.08%)
Intraday Only:    -$6.75 (-7.64%)

Though the DIA (Dow Jones) gained a small percentage point for July, had you only bought at the morning and sold at the close – taking no overnight risk – you actually would have lost just over a percentage point.

You would have lost money either way with Google, but you would have actually lost more money had you tried to avoid overnight risk.

With Exxon-Mobil, you would have done much poorer by refusing to take a trade home overnight.

The only of the four stocks I tested that did not show this pattern was Apple (AAPL), which actually would have cost more profits to hold overnight.  Keep in mind that Apple experienced a singular, large $17 overnight gap when it announced earnings guidance on July 22nd.  If we eliminate this whole day from the study (including the $13 intraday rally that took place on the same day), the “overnight numbers” would be a gain of $5.42 by holding overnight only vs a loss of $13.94 by holding intraday only – much more in line with the other stocks).

Perhaps this is encouraging news for the short-sellers, as the edge may be in shorting stocks intraday in this environment and not holding overnight, but these four stocks are far too little to draw any conclusions, as is attempting to draw any conclusions from a single month’s data alone.

I am showing this study as an initial idea in development, which will have me coming back and testing more stocks and longer time periods to see what the results will be when those examinations are complete.

3 Comments

3 Responses to “July Select Stats – Overnight Holding vs Intraday”

  1. Cristobal Says:

    Interesting study, one I’ve contemplated lately, especially since I’m a new trader and still subject to day trade rules. In other words, I’m limited on the amounts of buy/sells I can do in a given timeframe (3 round trips every rolling 5 trading days).

    All that to say that if I want to trade, sometimes I have to hold overnight, or at least that is a small consideration when I’m putting on a trade.

    One flaw I see in this analysis is that we cannot account for actual fill prices – who ever really buys at the close and sells at the open? Unless you’re a market maker or floor trader you don’t have those options.

    That said, not sure how else you’d perform this analysis. The same concept could be used on an individual trading system where entry and exit points are defined -or- you could use the open or close price to define exits. Now *that* would be useful information perhaps.

    Interesting study, but not sure how much it tells us about the real trading environment.

    -Cristobal Colon

  2. Corey Rosenbloom Says:

    Cristobal,

    I 100% agree with you. For me, when I do system or stock testing, I want to know the purest data and then apply discounts from there.

    For example, you’re right – you’ll never get the exact price fill on any day, and you’ll need to factor in commission and especially slippage (the open and close are often the day’s most volatile times) and that will be closer to actual, real-world environments.

    But everyone’s commissions are different, so the above, quick analysis is just a start and lets you know if there’s even any bother for running further analysis to see if a profit strategy even exists.

    The takeaway I get is that there’s more difficulty to day-trading than people think – and day-traders may be giving up significant profits if they held overnight. It will take more tests to convince me of this (as I am mainly an intraday index futures trader) but this is a start to find out what I and others might be missing – and change will be difficult at that.

    Thanks for reading and commenting.

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