What Happens When You Trade Stocks Based on News?
The outcome of backtesting a trading strategy based purely on financial news
We all know that one of the most impactful catalysts for stock price movement is financial news. A lot of negative press can drive a stock price through the floor. Conversely, positive financial news can skyrocket a former penny stock to the moon. Now, what would happen if we were to trade stocks purely on the sentiment from the press. Is it possible to ride the positive news wave to large financial gains? Or will it have been too late?
Seeing news headlines’ effect on stock price movement has been done before but I wanted to observe what would happen if you were to actually implement the financial news trading strategy. To do so, I used Python to code a backtesting process that would determine trade positions based on the sentiment from the previous day’s financial news.
I’ve attempted something similar to this before but with Tweets instead of headlines:
