When the world sleeps, your capital grows. 3C Overnight is an intelligent overnight momentum strategy designed to capture hidden opportunities.
Inspiration
The 3C Overnight Strategy is based on a quick and efficient pattern. It aims to capitalize on nighttime price movements while minimizing daytime market noise. By focusing on simple and effective price patterns, the strategy seeks to exploit inefficiencies in price behavior.
Key Components
The strategy uses a multi-day price pattern to identify investment opportunities.
It is based on simple entry rules and one exit rule.
It limits risk by exiting very quickly without setting rigid Stop Loss or Take Profit levels.
Backtest 1, Fixed $ Money Management
As part of this test variant, a fixed amount of $100,000 was invested.
Initial capital: $100,000
Test period: 1994 - 06.2025 (30 years)
Tested index: SPY
Equity chart for this test:
Backtest 2, % Money Management
In this backtest, we invest in a strategy that constantly uses 100% of the current capital (starting with $100'000). This means that as the capital grows or decreases, the position value changes proportionally. The rest of the parameters remain unchanged.
The 3C Overnight Strategy, despite having a lower CAGR compared to SPY, can still generate approximately a 33% annual profit when considering the capital at risk. This is due to its minimal capital requirements. In an ideal portfolio of similar strategies, it performs three times better than the benchmark.
The equity chart for this test looks as follows.
The chart includes a benchmark, which is a thin yellow line.
Basic statistics resulting from the test:
Analysis of Trading Strategy
Net Profit and CAGR
The 3C Overnight strategy made a net profit of $219 477, with a CAGR of 3.82%. In comparison, the SPY benchmark earned a net profit of $2 164 760 and a CAGR of 10.59%. This indicates that the tested strategy is trading rarely (~12% of the time) and has a lower net profit and a lower average annual return.
Drawdown and Return/Open Drawdown Ratio
The maximum open Drawdown was -12.95%, resulting in a Return/Drawdown ratio of 6.19, significantly exceeding the benchmark result of 5.02.
Exposure
The average exposure of the strategy was only 11.74%, indicating effective capital management compared to SPY (100%).
Winning Percent
The strategy was 58.6% effective across 524 transactions, showing stable results.
SL & TP
The strategy does not use traditional Stop Loss (SL) or Take Profit (TP) levels. The exit is managed based on defined conditions. More information: Stop Loss Orders – Are They Really Necessary?
Market Regime
The strategy has been tested in all fundamental market regimes and includes filters implemented on that basis. Read more about market regimes.
Trading Costs
The tests included transaction costs and slippage, using data from the broker Alpaca. You can check our latest research on transaction costs with Alpaca here.
With a diversified stock portfolio and strategy, transaction costs can impact your profit or loss. Take the time to thoroughly test and choose a broker.
Robustness
The strategy was tested over a long period on two instruments: QQQ, with 468 trades, and IWM (Russell 1000 ETF), with 476 trades. The simple rules and limited parameters enhance its robustness.
Recommended Instruments
Main instrument: SPY
Optional instrument: QQQ
Pattern Day Trader
The strategy did not close any transactions on the same day. This means that the strategy can also be used on smaller accounts.
Correlation
Detailed correlation analyses are available here: Correlation Analysis
Summary & Strengths and Weaknesses of the Strategy
Strengths of the Strategy
High effectiveness (58%).
Low average exposure (11.74%), allowing for efficient capital utilization.
Strong return-to-risk ratio (6.19).
Simple and resistant entry and exit rules.
Performs very well in recent years.
Weaknesses of the Strategy
Lower CAGR compared to "buy and hold" SPY.
Focus on one main ETF's (SPY or QQQ).
Summary
3C Overnight is an investment strategy that targets single-day overnight movements. It combines simplicity with efficiency. The strategy trades infrequently, leading to very low market exposure while maintaining high effectiveness and a strong risk-adjusted return ratio. Although it has a lower CAGR than SPY, its minimal capital involvement allows it to potentially generate up to 32% annual profit (exposure/risk-adjusted return) in a portfolio of similar strategies.
What you get in the package for this strategy:
Ebook describing detailed rules and results of the strategy.
SQX file ready to use on the Algocloud and StrategyQuant platforms.
Pseudocode that describes all the rules in an easy-to-understand way.
Disclaimer
The results obtained from historical data do not guarantee future outcomes. The effectiveness of a strategy can change over time. Backtesting is a tool that allows for the analysis and evaluation of an investment strategy based on historical data. Various factors, such as market changes or economic conditions, can influence the effectiveness of a strategy over time.
Investing always involves risk. This material is not investment advice. We share our experience and algorithms for educational purposes. We make efforts to ensure that our algorithms are error-free, but neither we nor the tools we use guarantee the absence of technical issues. Any decisions to use a particular strategy are made at your own risk and should be preceded by careful understanding and verification. You should always carefully consider your investment goals and risk tolerance before making investment decisions.
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