How Understanding Social Media Sentiment Can Help Your Trades
By CryptoMood on Altcoin Academy
In one of our previous articles, we talked about why general market sentiment is so important in a volatile, speculative market such as cryptocurrency. And in today’s day and age, a big part of sentiment is driven by social media. Love it or hate it, social media has been proven to be incredibly powerful to a point of even influencing elections. Given the potency of social media in 2019, one must understand why it’s so important, and more importantly, how to use it to your trading advantage.
The Justin Sun Fiasco
Let’s begin with the Justin Sun Tron fiasco. We won’t go too much in detail about the event as we have already covered it here. Whenever any major crypto-related trend emerges on social media, CryptoMood is the first to catch on it, not only does it find relevant, important social media trends. It also gauges the sentiment around it via cutting-edge, AI technology. CryptoMood not only caught on to the news early, but it also provided an accurate indicator of the market sentiment allowing any potential traders using the app to profit.
Timing Is Everything
In this day and age of social media where all kinds of news and rumors can spread like wildfire, the importance of being ahead of the wave cannot be understated. Those who learned about Bitcoin 10 years ago are at a massive advantage compared to those who got in last year. Those who learned about Ethereum, NEO and other altcoins that went parabolic in 2017 are also at a huge advantage due to timing. Timing is literally the difference between being up 1000%, and being down 90%. So how does this apply to social media sentiment?
Let’s take the example of the Chainlink-Google partnership announcement. Despite being in an altcoin bear-market, Chainlink ran up a ridiculous 152% comparative to Bitcoin after the announcement of a Google partnership. Its rally occurred in a space of 5 days. This means if you entered a trade on the first day you would have profited the full 152%. If you entered the 3rd day you would have only profited 60%. And if you entered after the 5th day you would have actually lost money.
This highlights the importance of timing when it comes to social media. The CryptoMood app not only tracks social media sentiment across all cryptocurrencies, but it also uses AI technology that tracks over 50,000 sources, bringing you important and relevant information for faster and earlier than any human could hope to. This then gives you the early trading signals to place the most optimal trades possible.
Filtering Out The Noise
Despite the importance that social media and news can have, it’s important to remember that this is not always the case. In fact, different studies have shown that news only moves markets about 10% of the time. Given the limited amount of time and resources that most traders have, it’s important not to get caught up overreacting and placing countless trades based on the 90% of news events that have no impact on the market at all. So what determines if a news event will be enough to move the market?
Contrary to what people think, it’s not always based on how big the news is. In the 2018 bear market, a lot of big news ranging from Bakkt to Fidelity was announced and none of it had any positive impact on the market whatsoever. On the other hand in 2019, a year with significantly improved sentiment, news like Facebook’s Libra Coin & BAKKT has played a key role in pushing Bitcoin back over $10k. So what determines if a catalyst will be potent enough to move the market? The answer again lies in social sentiment. Because general sentiment was so negative in 2018, no matter how much good news came out, the markets remained stone cold. This is especially key in the realm of social media where so much fake news and lies constantly float around. CryptoMood not only delivers social media news, but it also gauges the sentiment around it giving you the best possible information to decide if it’s worth basing your trading decision on or not.
Written by Ezra Yao