Pajama trading is not the future of trading. When the futures market opens for trading every Sunday at 3pm pst and 4pm est Monday through Thursday, there is a slew of activity, mostly from those wanting to take advantage of a thin market. The so-called pajama traders, a term coined by Jim Cramer describing those who may be trading in their pajamas overnight, seem to get it wrong more than right.
Now of course, there are exceptions, we have seen some fantastic trading action overnight - witness the big fall and subsequent rise during the Brexit vote in June 2016 and the same action during the election the fall of 2016. I suppose there is nothing wrong with trading the futures during off hours, but the really meaningful turnover occurs during real time hours.
Again, there are always exceptions to the rule but there are dangers always lurking. In the overnight session we have the opening trades in Asia, followed by the European open. We often get some sizeable movements in the S&P 500 Futures market if the Euros open up big or down big.
While I would refrain from trading in this thin market during the overnight session, there is some important information contained within. We can determine if the following day would be a 'risk off' day simply by looking at the action in Europe, China and Japan, along with the volatility futures, bonds and perhaps gold and the Japanese yen. If these latter indicators are up it stands to reason our equity markets will be lower, at least to start.
Yet, that is not always an indication of where the real time hours will be leading. Just the other day, the futures were down sharply but rallied to end the day near highs of the session, or some 25 SPX points higher. That's pretty strong, nearly a 1% move off the bottom.
Could one have made some nice coin picking up the dip overnight? Absolutely, but those opportunities are not frequent and are more inconsistent. The money flowing into overnight trading is thin and price action tends to be tricky, and while many just want to trade to feed an urge or a need, trading at a disadvantage is mare akin to gambling.
While it may seem I am against trading overnight with pajama traders, I'm aware there are some very savvy and astute traders out there who demonstrate consistent success. That's awesome, keep at it! For the great majority of us, the best odds of winning probably lies within the lines of real time hours after a good night's sleep.
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