Savvy investors: Would you ever consider using social media sentiment analysis to inform your next trade?
If so, you’re in luck. A new trading platform launched today and it claims social media sentiment can predict movement on the stock market.
The Wall Street Journal reports that “the platform, called DCM Dealer, will offer retail investors the ability to trade equities, foreign exchange and commodity contracts using a real-time sentiment tool based on data produced by Twitter, Facebook and other social media channels.
Paul Hawtin, chief executive of DCM, said: “Today, social media creates a vast amount of information and it has been proven that the sentiment derived from it can predict stock market movements. For the very first time, we are connecting this information source to the trading community, opening up the universe of social media data so traders can make more informed buying and selling decisions.”
The platform will “launch with 250 UK equities, major FX pairs, as well as commodities contracts, but Hawtin said he expects to expand into pan-European stocks “within weeks”, and into US and Asian equities next month.
Okay, but what’s this “predicting the stock market” stuff? As paraphrased from DCM Capital’s About Us:
There was an academic paper titled “Twitter mood predicts the stock market” that detailed a study carried out at Indiana University whereby millions of messages on Twitter were analysed and in turn a “mood” or “sentiment” was derived. . . . And (end result), the researchers “realised that changes in sentiment on Twitter preceded movements on the Dow Jones by 3 days, which effectively meant investors and traders could use the sentiment information to make better informed investment decisions.”
Three days. THAT could be a pretty incredible place to start when making investment decisions (assuming it works).
How do they measure sentiment? Using their own special algorithms, they mine Twitter (and Facebook) data, searching for key words and “in turn produce a sentiment rating on the asset in question.”
With a simple rating system from 0 to 100 with 0 being extreme negativity, 50 neutral and 100 extreme positivity. The real-time sentiment is displayed along with the daily change in points. And clients will also have access to charts showing historic sentiment data which they can overlay with historic asset price to highlight correlations.
But that’s not all – they also created a Sentiball display which shows a moon waxing and waning, green and red as sentiment changes over time.
Do you think this is the future of investing?
(Birds investing image from Shutterstock)