When to Buy a Stock Overnight
If you’re under PDT, trading part time while working a 9-5 to grow your small account, this is the perfect trading strategy for you.
I traded part time for years while working a full time job. During that time, I managed my time meticulously daily when I was working 9-7, 5 days a week, sometimes even 6 days a week. Even through that, I still managed to study the markets 2-3 hours every night and premarket, trade 1 hour at the open, and power hour right before the close.
One of the strategies I used to grow my small account while working part time, was to buy stocks overnight as a swing, and sell the next morning for a potential premarket gap up, or a morning spike. For those under PDT, this is great news for you, because an overnight buy doesn’t count as a day trade.
So in this blog, we’re going to talk about the 3 criteria I look for when I buy a stock overnight. We’ll talk about the technical setups, potential risk reward, and I'll be going through step by step on how to find potential overnight stocks for free on Finviz.
Daily Chart
Let's get into this. The first criteria I look at when I am looking for a swing overnight, is the daily chart. From a purely technical analysis stand point, I want to see the current daily candle, closing above the previous candles. I don’t normally look at the wicks on the daily chart. I look at the opening and closing price of a candle.
So what does that mean exactly? You guys know I don't believe in patterns in day trading, but I care more about that when I'm swinging trades and buying stocks overnight. So when the daily candle is closing above previous resistance, it means the stock has enough buyers to clear the overhead supply from the sellers.
Volume
While we are on the daily chart here with SDC, the second criteria I need is volume, and ideally, increasing in volume down here at the volume. You can easily see the volume on stockcharts.com. The buying volume is gradually coming into the stock and even the volume candles are closing stronger than all the previous red selling volume bars.
Very important though, while the volume does not have to be increasing steadily like SDC, you definitely want to avoid swinging overnight charts like these. This is what I call a barcode chart. There is just no volume whatsoever on the daily. Usually these are stocks with less than 100K daily average volume. You can see the daily volume average in each stock when you go to finviz.com
The key here is to look at average volume. Ideally I want something more than 500k daily volume to swing overnight. Otherwise if there have been times when I'm stuck with liquidity issues, especially on some of these thinly traded penny stocks, and even mid cap and large caps too, I couldn't sell.
When it comes to the daily average volume you don't want to be stuck with 40 cents spread and end up holding the bag.
So before we go to the next criteria, let me tell you how to look for these stocks with the ideal daily chart on Finviz and give you my analysis based on the 2 criteria I just mentioned.
Finviz is a great free tool for beginner traders, part time traders. I used it when I was trading while having a job. It's great for looking for overnight swings, or possible day trades at the open the next morning, but the only thing it doesn't have is the premarket scanner.
Because the chart data is delayed. It's free after all, Thinkorswim does have a premarket gap up scanner that's free. It's not the best, but it does the job. Free tools can only go so far.
Fundamental Catalyst
Now that we’ve gone over the first two criteria, which are all based on technical analysis on the daily chart. Let's talk about the third criteria for this swing overnight strategy, which is a fundamental catalyst.
I consider myself a mix of both a fundamental and technical trader, meaning I don’t trade just based on candlestick patterns, or just the fundamentals, I’m a mix. I want both the fundamental catalyst and the technical set up to align. That strengthens the thesis in both my day trade and swing trade and it's the same when I'm swinging for a few weeks or just overnight.
So what kind of fundamental catalyst are we talking about? Well it could be positive earnings, new partnership or contract deals, positive biotech data. To sum it up, basically it's positive news that could potentially increase the companies’ earning potential in the short term.
Remember, the stock price increases or decreases based on the future earning potential of the company. So if a company has a brand new contract let's say with Walmart, a contract with Walmart or any big retail giants would mean that this company’s earning potential will likely be drastically short term, so that's a bullish fundamental catalyst. Another example of what I really liked as a catalyst for overnight swing, is sector hype or sympathy.
I have talked about sector hype, or bubbles before, but basically if the stock is in a hyped up sector, and the daily chart is technically bullish according to our first 1 and 2 criteria, then that would be something I'm interested in swinging overnight. Some good examples of sector hype in the past few years are, blockchain bubble of 2017, cannabis stock bubble 2018, shippers 2016.
So let’s look at SDC, for example from earlier. We already know that the stock has a technically bullish chart. But does it meet our criteria number 3? Looking at a Benzinga research tool, you can see SDC smile direct club had recently launched a line of oral care products at Walmart. That's big news.
SDC would then be a good candidate as a swing overnight on Jan. 15. I like to enter in the last hour of the trading day from 3pm to 4pm. Because that gives me time to look at how the stock is holding up intraday and if it's closing strong. If it is and it meets all 3 criteria we talked about, then I’d long it near the end of the day, and sell it into a potential premarket gap up or a morning spike.
I actually messed up on my very own SDC swing. I entered too early on Jan. 6, and got stopped out too soon, so I took a loss on that swing, only to see the thesis work out perfectly a few days later. I'm not a perfect trader, and I probably never will be, I'm only human after all.
Is the overnight strategy going to guarantee you 100% success rate, absolutely not. But with the three criteria I mentioned in place, the chances of these overnight swings working out is dramatically higher. It's also a perfect set up for those who are working a full time job trading part time, under PDT, and growing their small account.
