The best time of day to own stocks is actually at night

 

The Best Time of Day to Own Stocks Is Actually at Night: In This Profitable Trading Strategy, You Buy at the Market Close and Sell at the Open

When it comes to trading stocks, most people think the action happens during market hours. But what if the real money is made while you sleep?

A growing body of research suggests that one of the most consistently profitable trading strategies involves doing the exact opposite of what most traders do: buy at the market close and sell at the next day’s open. It’s called the overnight trading strategy, and over decades of market data, it has quietly outperformed traditional buy-and-hold or intraday approaches.

Why Nighttime Is the Right Time

Stock market movements aren’t confined to the 9:30 AM to 4:00 PM trading window. After-hours trading and pre-market sessions are filled with price movements driven by earnings announcements, macroeconomic news, overseas markets, and investor sentiment that builds up while Wall Street sleeps.

Historically, the bulk of the S&P 500’s returns since the 1990s have occurred during these off-hours. According to multiple backtests and academic studies, if you had invested $100,000 in the S&P 500 and only held that position overnight—buying at the close and selling at the open—you would have significantly outperformed the same investment held only during regular trading hours.

One study from the Journal of Finance revealed that between 1993 and 2020, 100%+ of the S&P 500’s total return came from overnight price gains. In contrast, returns during regular market hours were close to zero or even negative in certain decades.

The Strategy in Action

Here’s how the overnight strategy works in simple terms:

1. Buy shares (or ETFs like SPY) at or near the market close—around 3:55 PM EST.

2. Hold the position overnight.

3. Sell at or just after the market opens the next morning—typically between 9:30 AM and 9:45 AM EST.

It’s a simple, rules-based strategy that minimizes the need for constant monitoring or day-trading stress.

Why It Works

Several factors contribute to the success of this overnight edge:

• News moves markets overnight: Companies often release earnings and press releases after the bell. Traders react in after-hours markets, setting the stage for gap-ups at the next open.

• Lack of retail trading: Most individual traders operate during the day, meaning institutions dominate overnight moves with less noise.

• Fear premium: Investors demand a higher return for holding overnight risk, which may result in upward price pressure.

Real-World Performance

Let’s say you followed this strategy using the SPY ETF, which tracks the S&P 500:

• If you held SPY only during the day (open to close), your long-term return would be minimal, or even negative during certain periods.

• If you held SPY only overnight (close to open), you would have seen substantial positive returns, especially during periods of low volatility and bullish macroeconomic trends.

The Downsides to Consider

As with any strategy, overnight trading isn’t foolproof:

• Gaps can go against you: While overnight gaps are often positive, they can be negative after bad earnings or global shocks.

• No intraday stop-loss: You can’t react in real-time if something happens overnight.

• Limited in retirement accounts: Some tax-advantaged accounts restrict frequent trading or overnight holds.

How to Implement It

For individual investors interested in trying the strategy, here are a few options:

• Use ETFs like SPY or QQQ for broad index exposure.

• Set limit orders near the close and open to reduce slippage.

• Automate your trades using brokerage APIs or trading platforms like Interactive Brokers, Thinkorswim, or TradeStation.

• Backtest first: Use platforms like TradingView, QuantConnect, or Portfolio Visualizer to test the strategy against historical data.

Bottom Line

The idea that “the best time to own stocks is at night” may sound counterintuitive, but the data backs it up. For patient, disciplined traders willing to embrace a simple, low-maintenance approach, the overnight strategy offers a powerful edge—one that has quietly outperformed Wall Street’s brightest during the daylight hours.

Just remember: markets change, and no strategy works forever. But if you're looking for an evidence-based way to let your money work while you sleep, buying at the close and selling at the open might be your next move.