Overnight Momentum

Overnight Momentum is an indicator designed to be used on stocks with the daily timeframe. It shows the total overnight return expressed as a % for the past 100 days by default, however this is a setting that can be changed by the user.

A lot of people don't realise that the vast majority of total stock market returns come from the overnight session, in fact research from the NY Times and plenty of other sources shows that since 1993 all of the returns from the S&P 500 Index SPY have come overnight and cumulative intraday returns are actually in fact slightly negative. Furthermore, some stocks show much stronger overnight returns than others and at certain times too, generally speaking when the overall market is strongly trending up overnight returns are better. Research also shows that stocks that have good overnight return momentum tend to continue.

All this research lends itself to some trading strategies such as buy the close and sell the open on stocks with strong overnight momentum. The idea is to go through a screener of up-trending stocks each day and look for stocks with high readings above 30 on the Overnight Momentum Indicator, which means that the cumulative return for the past 100 days is above 30%. Then one could buy the closing price using a market-on-close order and then sell the next day using a market-at-open order, participating in the closing and opening auctions at stock exchanges which are the most liquid times of day with the most solid fills on offer. Some of the best returns from this overnight gap up strategy can come from smaller stocks with very strong short term momentum and prices that are closing near all time highs on days with much larger than usual volume.

This indicator can also be used to see which stocks have robust momentum overall, as sometimes there can be divergences between Overnight Returns and Total Returns, for example if the Overnight Momentum Indicator turned negative that could be a sign of a trend changing from bullish to bearish and vice versa. Generally speaking strong up-trending stocks are accompanied by strong overnight returns too.

Since forex, crypto and futures trade almost continuously it's not recommended to use this indicator on those markets, only use it on stocks which have clear closing and opening times in order for the indicator to measure overnight returns.

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Disclaimer: All my scripts and content are for educational purposes only. I'm not a financial advisor and do not give personal finance advice. Past performance is no guarantee of future performance. Please trade at your own risk.