Can you use Twitter to trade the markets?

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Using Twitter Messages To Predict Stock Markets?

JP Morgan’s ‘Volfefe Index’, idea is not a new one. In fact, researchers have been testing on this idea for years, ie, using Twitter as a proxy for market and public sentiment and its predictability on markets.

In fact, CMC Markets produced a handy infographic on market movements caused by Twitter sentiment.

As early as 2010, Bollen et al from Indiana University used 9 million+ Twitter feeds as a proxy for public mood. They tested changes in these messages against the subsequent movements in DJIA and found some association. It was the first time that a connection was scientifically made between Twitter massages and market movements.

Later, two Stanford researchers also affirmed Bollen’s study when they use Twitter feeds to predict DJIA. Their study used neural network. Since then, many other studies have been published.

These results caught the eye of some practitioners. Derwent Capital Markets, in 2010, was launched with this concept. Their edge was to employ Twitter feeds as the raw material. After some statistical analyses, these results are used to bet on market movements.

But their efforts did not translate into marketing and financial success.Why? Presumably, I suspect the Twitter space is far too noisy.

Remember, Twitter is a crowd-sourced messaging service. Some messages are genuine; some are not (fake news, they call it). Segregating them is hard work. Even then, with all the results the ‘edge’ may be too small to earn above-market returns in reality. Friction costs money.

How To Use Twitter Effectively For Trading

As of March 21, 2019 this year, Twitter has officially became a teenager. A mature social media platform used by millions. It has become a go-to place for many investors, traders, and financiers. Financial twitter is now a very active place for all sorts of market banters. You can benefit from using the platform too. Here are some tips to use them effectively for forex speculation, financial spread betting and CFD trading:

  • Follow selectively. Some CEOs and heavy hitters actively use Twitter to promote their views and products. Some don’t. For example, you can learn a lot from Mohamed El Elrian and Ray Dalio’s tweets. But not Warren Buffet. As of 2019, the third richest man in the world had a grand total of 9 tweets – but 1.5 million followers. 
  • Use Twitter for stock research – Check out if the CEO of a listed firm has a habit of posting disruptive tweets. Some do – like Elon Musk of Tesla inc (TSLA). If you own this stock, following Musk’s tweet is almost essential. Also, Twitter space can produced heated arguments, say, between bullish and bearish camp of Tesla. You can listen to both sides for your portfolio.
  • Subscribe to news feed. These feeds may give you some market-moving ideas:
  • Use data mining tools. Twitter is a voluminous source of info. These tools can help you analyse and aggregate the impact of tweets, summarise collective information, and backtest some ideas. Some useful tools include:
    • Dataminr Has direct access to the company’s firehose.
    • Python – its twitter module is very useful
  • Interact and network. If you interact more, you may get more ideas.

Lastly, I attach Fintwit’s Fantastic List of twitter accounts (webpage here) to get you started:

FinTwit List (work in progress)

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