Eminis: setting stops in overnight holding?

clylbw

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Hi,

So far I only day trade Eminis. However, recent conditions have raised the possibility of overnight holding. I have defined the setups, but am having difficulty in setting stops.

As DeltaGuy has shown previously ( http://www.trade2win.com/boards/showthread.php?t=14424 ), setting stops in overnight holding is not always what it seems. While I do not wish to risk more than my preferred level, I do not want to be shaken out of my position by 'rogue' spikes, either.

I know big boys probably have others to watch the market for them, and system traders have the machine, but I have neither. As a discretionary individual trader, how can I set effective stops in overnight holding?

Thanks indeed.
 
Oh dear, another cold topic.

Is it because few hold eminis overnight, or because it is not worth bothering? But it is so crucial to me at the moment... :(

Anyone holds overnight positions in other instruments? If so, can you please indicate how you deal with the after-hour spikes while setting stops? Thanks really.
 
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clylbw said:
Oh dear, another cold topic.

Is it because few hold eminis overnight, or because it is not worth bothering? But it is so crucial to me at the moment... :(

Anyone holds overnight positions in other instruments? If so, can you please indicate how you deal with the after-hour spikes while setting stops? Thanks really.

When I hold overnight , there is no setting stops after 4:15 pm. Then the next day a stop will be set after 8:00 am. for the day ( on the emini S&P anyway).

erie
 
Thanks erie.

When you set stops for ES, would you take into account the possible after-hour spikes? Thank you indeed.
 
The "Overnight Risk"

Funny enough: One week ago I published an article about "the overnight risk in the e-mini S&P" in our blog. :)

So here's my take on it:

Many daytraders like to close their position and the end of the trading day because of the so-called "overnight risk". Though there surely is a overnight risk in markets like the Euro and other currencies, there's little evidence of such a thing when trading the e-mini S&P.

Here's why:
  • The highest difference between yesterday's close and today's open over the past 300 trading days (i.e. approximately 1.5 years) is 1.3%. Considering today's closing price of 1,175 this translates into 15.25 points (=$762.50).
  • The average difference between yesterday's close and today's open over the past 300 trading days is 0.23% = 2.75 points. So the average "risk" that a position opens higher or lower than the previous day close is currently $137.50 (!!!).
  • In comparison: the highest difference between the day's high and low over the past 300 trading days is 2.36% = 27.75 points = $1,387.50.
  • The average difference between a day's high and low is 0.95% = 11 points = $550.

Too many numbers? Let me put it in simple words:
The maximum amount you could lose when trading intraday is two times higher than holding a position overnight, and looking at the averages the "daytrading risk" is four times higher than the "overnight risk".

So why are brokers giving you a reduced margin when you open and close a position intraday?
Well, they can not distinguish whether you are holding a position only one night or several days, and of course the above figures change when you hold a position for several days or weeks.

clylbw, the e-mini S&P may have some overnight spikes, but if you watch the charts you'll see that prices usually move back to the close of the previous day. Setting an overnight stop might take you out of a position with a loss while you would have been able to close it with a profit if you'd waited until after the open.

Markus
 
clylbw said:
Thanks erie.

When you set stops for ES, would you take into account the possible after-hour spikes? Thank you indeed.

The only reason I would set a stop is to lock in profits .

Is it because few hold eminis overnight ?

Or quite possible very few trade enough to know this.

erie
 
I dont do overnights so this is purely hypothetical on my part but may be usefull.

Put a stop in 2% above/below where the market closed as last resort fail safe.
Hopefully a stop that far away wont be hit by a spike, only by real market moving news
(acts of war , or acts of nature).

90% of these moves will be on the downside, theres only one news event that might move
the S&P up 2% overnight that i can think of, and that is if OBL is captured when the
markets are closed.

Then create an insurance account, put some profits aside for those cases where the S&P gap a
whole days range against you at the open (ie take your loss at the open, assuming
above fail safe hasnt been hit).

These big gaps will occur but not very often, and ofcourse they have a just as much chance of being in
your favour as not, infact if you are trading with the trend and market closed strong the chances are
probably 60% that any gaps will be in your favour.

However when a big gap goes against you then you can just transfer money out of the insurance account
and into your trading account.

A smallish gap against you will happen more often and that can just be a normal trading expense.
 
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Agree with DD.

It is also useful to distinguish between gaps and spikes. I trade the mini-DOW in preference to the E-mini S&P and find that opening gaps are filled during the trading day in a large majority of cases (>70%). I often play them with a 20 point stop. The exceptions are generally unexpected news based and obvious enough to spot.

I do hold overnight sometimes and have never found spikes a problem. Unlike spread betting/Index CFD derivatives, there isn't a single organisation that has a clear interest in, and could decide to move a price momentarily for the sole purpose of sweeping up long (or not so long) stops - spikes are therefore rare. An out of hours fill of as little as 5 contracts during very quite periods can move the price a few points so I guess it would be possible for a well capitalised operator to try a little jiggery-pokery, but I haven't fallen victim to such - yet! They are certainly less common than in the secondary derivatives.

I rarely use any stop on an overnight position - and then only the sort mentioned by DD when I am long. The obvious downside is that I have to be damned certain I have everything switched on and ready to go at the next main market open.

There are complications - as I'm sure you are aware - around placing and modifying various types of orders out of normal exchange hours which need to be taken careful note of as well
 
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So many thanks to all of you. :)

donaldduke, about the "insurance account" you have mentioned. Would an instant saving account do?

Peterpr, can you please tell me more about "placing and modifying various types of orders out of normal exchange hours which need to be taken careful note of as well"? I am only aware that during certain time of the night, it can be difficult to log into my account in IB to place and/or modify my stops.

Thank you really. :)
 
clylbw said:
Peterpr, can you please tell me more about "placing and modifying various types of orders out of normal exchange hours which need to be taken careful note of as well"? I am only aware that during certain time of the night, it can be difficult to log into my account in IB to place and/or modify my stops.

Have a look at :

http://www.interactivebrokers.com/cgi-pub/exchange_display_web.pl?einfo=usCBOT2&file=ECBOT.html for the Mini DOW (CBoT)

http://www.interactivebrokers.com/cgi-pub/exchange_display_web.pl?einfo=usCME2&file=GLOBEX.html for the Emini S&P (CME - Globex)

I have not experienced problems logging into IB at any time. You need to understand how "Place/Modify stops" translates into the correct instructions to IB / Exchange to achieve what you want (or as close to it as possible) and the rules surrounding acceptance and modification of orders. It can be a bit of a minefield.
 
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