Do I need a PHD to trade with sentiment?
The process of sentiment extraction and analysis is a sophisticated scientific process but the application of the data in trading has never been easier thanks to Acuity’s simple-to-use trading tools. Similar to taking an hourly poll of investors’ mood, Acuity’s tools quantify and visualise global, market mood towards any given asset so that you can plan your trading strategy with greater insight.
Sentiment data oscillates a lot, how do I make sense of it?
Markets are considered to be very ‘moody’ and this mood fluctuates up and down from day-to-day and hour-to-hour. To make more sense of these fluctuations as traders, we are compelled to understand the underlying trend. To help visualise these trends momentum indicators such as a Simple Moving Average can be used.
Is sentiment just a fad?
Sentiment data is widely used across multiple industries, particularly PR and marketing, and it is proving an invaluable tool in enhancing the customer experience for companies of all sizes and sectors. Within finance, sentiment data has been used by institutional investors for over 10 years in automated trading, particularly hedge funds, and is recognised to be a profitable addition to other trading strategies. As with most trading tools, many of these are adopted by institutions before the retail market and sentiment is no exception. Safe to say, automated sentiment extraction is here to stay and with continual technological advancements, the applications for sentiment data are increasing.
Can sentiment data replace traditional trading tools?
Whilst sentiment data can be used as a standalone tool, it is at its most powerful when combined with additional tools by crossing signals.
Is sentiment predictive?
On many occasions sentiment has proven to pre-date market movement although it cannot be guaranteed. However Acuity Trading sees value beyond its predictive capabilities but instead monitor for extreme levels of sentiment and as a means to analyse how price traditionally reacts to sentiment.
How reliable is sentiment data?
Although still a relatively new technology, news analytics has changed from simply a scientific research project to reliable and successful product offerings, which are routinely used by many sectors, including institutional banks. More in question these days is the reliability of the text sources that we scan for sentiment. For example, some Hedge Funds scan only social media but due to the susceptibility of Twitter to hacking, these sources are considered higher risk. At Acuity Trading we use a large amount of different sources, including traditional news and social media, and rely on consensus sentiment which is much harder to manipulate.
Why do you use Twitter?
At Acuity Trading we incorporate Twitter data but this is just one source amongst many. Whereas some sentiment providers focus solely on Twitter for extraction, we feel that because only a small percentage of the global investment community currently uses Twitter, it is insufficient to offer an accurate, single view of market consensus. As confidence in social media such as Twitter grows at pace with adoption by the investment community, such sources may advance in their significance and importance.
Do you only use English sources?
Acuity Trading uses very sophisticated technology to extract sentiment in multiple languages giving a much broader representation of the global investment community. However our focus is on English as the majority of financial media is produced in English.
What is the ‘Feel Good Factor’?
The ‘Feel Good Factor’ is a ratio of Financial Positivity and Financial Negativity in the market. However, Acuity Trading quantifies more than just the Feel Good Factor by also measuring levels of Fear and Joy to paint an overall picture of the market.
Why do you follow Fear?
Fear and joy are essential, extreme forms of positivity and negativity in the market. They are a ‘lightening rod’ for highly charged emotions that could be used as an indicator of larger moves in the market.