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Charts & Analysis

While You Were Sleeping: What Stocks Do Overnight versus in Trading Hours

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There’s so much activity during the trading day. Stocks are going up. Falling. The index is moving. The TV channels are on. Sometimes the anchors wear special t-shirts to celebrate things like Nifty 10,000 or Sensex 30,000.

But is the trading day important? When prices are moving back and forth, how much money is made?

The answer will surprise you.

Since 1995 (when we have data) the Nifty’s intraday moves have lost you money. In fact of the Nifty’s 11200 points or so, more 10,900 were lost in intradav movements.

All the money was made in overnight moves.

(Intraday: Difference between open and close of any day)
(Overnight: Difference from yesterday’s close to today’s open for each day on the market)

Nifty Moves

You’ve made money on overnight moves, primarily. And it’s not even symmetric.

If you bet on any day’s move, it was just about 50% chances that it would close up that day. And the average daily move is +33 points, but that is meaningless (because 36 as a percentage of 2000 is a lot different from when the Nifty is 11,000).

However, it’s useful to compare it with the average down day – which is -36 points. In the nearly 6000 trading days in the past 24 years or so, the trading days themselves have added no value (in fact they have taken away value). All the money was made in overnight moves:

While You Were Sleeping: What Stocks Do Overnight versus in Trading Hours

 

Most of the money was made when you were sleeping

But this wasn’t always the case. For a long time, the overnight moves weren’t much. It was all in the trading day. This is due to a data problem – in many cases, there was no conspicuous “open” in the Nifty data – they would just consider a number around to the previous day’s closing number to be the open. This was the case till 2010 when NSE introduced the Pre-Open market (see our post on it then!) when the open price would be determined via a 15 minute auction process.

This has given us a better handle on the picture of intraday versus overnight. And it becomes obvious from then on! Here’s a chart of cumulative intraday and overnight moves: (Cumulative means if the Nifty had moved +100 points one day and -60 points on the next, the cumulative number is +40. If the next days moves +80 points, it becomes +120 and so on)

Pre Open Auction and Moves

Essentially, all of the moves happen when there is no trading. All the up-move, in effect.

And the last five years have been brutal – even in 2019, when the Nifty is flat, we have seen nearly 2,000 points in overnight moves (in the positive)

What about Stocks? Doesn’t HDFC Bank benefit primarily from all that buying?

Well, somewhat.

90% of the HDFC Bank move is from overnight changes.

This is for a stock that has moved from (an adjusted price of) Rs. 4 to Rs. 1200 today. A 300x move, while you were sleeping.

HDFC Bank Move

What can we learn from this?

We like to believe that there was a big move in a stock or an index when some news “broke” during market hours. But it doesn’t matter. The real move is overnight. Ignore the intra-day hiccups and the news that leads to it!

If it’s meaningful, it will continue overnight.  Even the recent tax-cuts by the finance minister happened during the trading day. That took the index up 7% or so in that day. You might have felt left out then – but really, it didn’t matter!

Another point is more philosophical. Spending more hours looking at prices won’t make for great longer term stories. Stocks germinate overnight, and just diddle around during the day. Sounds like how I spent my college days.

Lastly, there’s probably enough data here to say this: buying at the close and selling at the open the next day will make you some money 🙂