One of the more nuance aspects of information used for intraday and swing trading is news obtained from social media sources. Social Media, in and of itself, has become ubiquitous terminology for modern day communication among the masses. Within recent years, the medium has been adopted by numerous traders in both the professional and casual setting. Various access points are utilized to gather and analyze information. Traders receive information from notable sources including twitter, facebook, popular finance blogs, forums, and chats. Those with a technical sense upgrade their ability to receive data by using screeners and existing and proprietary algorithms. Though modern and evolving technology exists to manage and “make sense” of the barrage of social media information, 100% clarity, based on pure technological breakthroughs such as natural language processing (NLP), remains rather illusive.
After a considerable effort over the last several years of research and back testing, we were able to prove and disprove some unique misconceptions of using social media as a compliment to trading. Warning: Some of the information may be a tough to swallow. 99.99% of the time, information received from social media portals is “lagging”. Meaning, more often than not, mentions of securities on feeds such as twitter and other ephemeral streams are worthless and should not be used as financial advice. Moreover, quite a bit of information provided on the aforementioned streams, forums, and chats is used for “pumping” stocks and is the basis for disingenuous information.
There are, however, isolated examples of how social media may impact certain securities. Recently traders witnessed the impact of familiar blogs and twitter handles on stocks. Specifically, XGTI, xG Technology, was mentioned positively in a popular blog. Although initial intraday reaction was somewhat muted, as the positive note continued to be “passed around desks”, the stock experienced a rather significant increase in volume and price action. VTL, Vital Therapies, was mentioned in a tweet by a noteworthy individual. Because the tone of the tweet was negative, the stock did see an initial down move and volume increase. W, Wayfair Inc, was also on the receiving end of a negative piece on twitter indicating a possible future price of $10. The stock experienced an initial downtrend and continued lower over the course of a few trading days.
The purpose of this short analysis is show how market perception changes when isolated information, recognized analysts and “news makers” release information for the masses. We will continue to report on aspects of social media information and how it impacts trading and volatility.
