Gain an Investment Edge with Twitter
For many investors using Twitter ($TWTR) has become just as much a part of their daily routine as checking Bloomberg markets. In this blog I will discuss four ways in which Twitter can be used to give investors an edge, these are…
- Fundamental and consumer analysis
- Event detection
- Sentiment analysis
- Market influencers
Using Twitter for fundamental and consumer analysis
How Can Twitter Help?
Twitter has become a hub for influential market movers to share their thoughts, for users wanting to expand their influence and for consumers to express which brands they love or hate. By using this data, Twitter has become a key tool for fundamental and consumer analysis, helping to inform investment decisions.
- Fundamental analysis focuses on the financial statements of the company being evaluated.
- Consumer analysis focuses on how consumers are reacting to companies and what they are looking for when making purchases. This can be used to predict possible trends in the future.
Not only is Twitter a great tool for providing investors with fast-moving, real-time news updates, it can also be used with a long-term view to take a more fundamental approach to tracking the market over time. By listening to consumer messages on Twitter to find out what is driving consumer sales, investors are able to make better-informed decisions.
According to the McKinsey & Company analysis, 30% of social media users prefer customer service via Twitter to traditional customer service call centres and so has become a marker for investors to decipher how a company is performing in the consumer’s eye.
Twitter in Action- Samsung Phone Recall
With a large amount of data available on Twitter, it makes it possible to use data mining and analysis techniques to gain insights into consumer behaviour. From this, consumer panels can be identified, allowing investors to gain early insights into the consumer’s thoughts and feelings towards a new product. For example, in September 2016, just one month after the phone’s launch, Samsung had to recall every Galaxy Note 7 as handsets were spontaneously catching fire. As seen below, consumers headed to Twitter to express their feelings.
An investor would have been alerted to this before reports of the recall were released and before shifts in stock price materialised. A savvy investor could then use this information to make smarter investment decisions.
More Bad News with Samsung Washing Machine Recall
Similarly, in November 2016 Twitter users flocked to the site to complain about Samsung washing machines. Samsung later was forced to recall a whole range of their machines due to them falling to pieces when turned on. Twitter is therefore beneficial to see real-time shifts in consumer behaviour towards a company.
Twitter and Markets
Twitter internal data (November 2015) showed that Twitter users send over 100,000 questions, complaints and comments to US airlines each month. Twitter then partnered with Applied Marketing Science to analyse public interactions between airlines and their customers. Their results showed that customers who complained on social media were less likely to recommend the airline to a friend or to use the company again. This, therefore, shows that the more negative sentiment around a company on Twitter the more negative shifts they will see in the financial market. Less retention of customers would impact on profits, therefore would impact on share price. Traders can, therefore, benefit from seeing this shift in consumer opinion when reassessing their investments.
How Can Twitter Give me an Edge?
A recent example of the power of Twitter, from the 16th August, is when Donald Trump wiped $5.7bn off the value of Amazon $AMZN with a single tweet. The President tweeted:
Within two hours of pre-market trading after the tweet, Amazon’s shares lost 1.2% of their value. Trading.co.uk have identified Trump as one of the most influential movers of the market, therefore have created a tool for users to track Trumps moves, ensuring they are always one step ahead.
Further to this, with the millions of tweets sent out each day, it can be hard to find those which are beneficial to an individual investor. Trading.co.uk works to help investors cipher through the millions of tweets to only surface information that is relevant to them and their investments. By using their proprietary AI to analyse Twitter ($TWTR) conversations around companies, brands, and products Trading.co.uk is able to provide investors with early indicators of breaking news, this often results in a shift in price.
Using Twitter for event detection
Twitter ($TWTR) has become a key source of news, information, and signal for the financial market over the past few years. Financial analysts, market professionals, and investors are increasingly using data from Twitter to inform their trading decisions.
Why Event Detection?
Event detection from Twitter is a research area that has rapidly expanded due to the widespread accessibility of data from social networks. Early detection of events can be valuable to investors, helping them make better-informed decisions before shifts take place in the trading market.
There are two key Twitter users, both of which are equally important when aggregating and studying tweets to detect events and inform trading decisions.
- Users who have a specific goal for posting on Twitter, for example, a news forum may share a specially crafted news story.
- Reactive users who use Twitter as a forum for sharing what they have on their minds.
For reactive users, Twitter gives everyone the power to become a reporter, often when a major news event or tragedy occurs, observer’s head straight to social media to share what they have witnessed. This is normally published long before news reports. According to Ritholtz, this is down to the ‘Twitter Effect’ where Twitter has now become the “new” newswires.
Boston Marathon Bombing- Detected by Twitter
The Boston Marathon bombing in April 2013 was reported by the public on Twitter 15 minutes before CNN and traditional news outlets broke the story highlighting how an investor can use Twitter data to get a heads-up of potential impacts on the market caused by major events and protect their investments.
Twitter Detects again… Alton Towers ‘Smiler’ Rollercoaster Incident
In 2015 when Merlin Entertainment ($MERL) saw stock prices tumble after the Alton Towers ‘Smiler’ rollercoaster incident. Just 6 minutes after the incident witnesses had already headed to Twitter ($TWTR) to share the news.
Using Twitter for event detection would have alerted investors to the incident before Merlin’s shares dropped. For example, while in private beta, Trading.co.uk was able to inform users of the incident nearly a full hour before Merlin’s stocks plummeted.
This happened again, on Friday 22nd April, a year after the incident, Merlin pleaded guilty to health and safety breaches which led to the terrible crash. By using social sentiment, Twitter again was useful for event detection to inform investors of potential negative shifts in price for Merlin.
Make Twitter work for you?
Trading.co.uk’s AI was able to pick up on unusual activity and alert users at 10.08 almost an hour and a half before news outlets revealed the announcement at 11:30 am.
Traders would, therefore, be alerted to the event long before shifts in the price took place giving them a market edge.
Using Twitter for sentiment analysis
With billions of tweets sent out each week, Twitter ($TWTR) has become a key medium for influential market movers to share their thoughts as well as for users to express their thoughts and feelings towards certain companies or products.
Why is Sentiment so important for investing?
By monitoring financial news and consumer messages published on Twitter investors have access to real-time financial information. This data can be used to determine whether a tweet surrounding a certain company is positive or negative and allow the investor to use this as a data point in their overall decision making. Often if a company is seeing negative sentiment then this will lead to a negative shift in stock price. Consulting firm McKinsey & Co. for example found that a negative buzz from an unnamed telecom client on social media damaged sales by 8%, once other users were exposed to the message, this therefore impacted on the stock price.
How Trading calculates sentiment?
Trading.co.uk harnesses the power of their proprietary AI engine, advanced natural language processing (NLP) technology and analytics to gather, real-time financial information and insights in order to assign a sentiment score.
Twitter in Action- Pepsi Pull Ad
In April 2017 an advert released by drinks company Pepsi received a negative reaction from the nation, who claimed that it trivialised street protests across the US, Pepsi soon pulled the ad.
Before outrage hit the traditional news outlets, Twitter users had already expressed their opinions of the ad, resulting in overall negative sentiment for Pepsi ($PEP). Trading.co.uk was able to alert users to severe negative sentiment on the 3rd April, 2 days before Pepsi ($PEP) saw a 0.89% price drop on the 5th. A savvy investor could have picked up on this negative sentiment and used it to predict a possible impact on price, way before any shifts took place. This would allow them to reassess and protect their investments. As seen below…
How Can Using Twitter Help Me Make Smarter Investment Decisions?
That’s where trading.co.uk can help… Trading.co.uk gives investors the power to identify market volatility through real-time alerts, by using proprietary sentiment algorithms to analyse millions of data points every day. We use this data to determine whether the sentiment surrounding certain people and companies is positive or negative and present it in a quick and easy format.
This helps users delve deeper into the fundamental and consumer analysis which is already at play on twitter. Alongside, aiding in the detection of key events surrounding their investment interests. This will allow a savvy investor to both spot potential investment opportunities and re-think their market position before shifts in the market take place.
Using Twitter to find educational content and trading ideas
Getting a Trading Edge from Twitter’s Technical Analysis Influencers- Twitter doesn’t stop there… a whole host of influencers from the technical analysis industry are also on Twitter. This gives users the power to find trading ideas, see chart analysis and access technical market reviews.
Here’s an example of the an analysis, shared by J.C Parets (@allstarcharts), that supports the Bull Market claim by showing the current uptrend in the Nasdaq’s 30 biggest stocks:
Twitter not only helps traders spot opportunities, but it can also be used as an education tool to help strengthen their trading skill and decisions.
The Market Zone (@themarketzone on Twitter) is an example of a technical influencer in which Twitter users can benefit from both trading ideas and educational content to help improve their trading strategy and trading performance…
Keeping one step ahead with Market Influencers
There is no denying that Trump has become one of the most influential movers of the market… so much so that his tweets can sometimes offer investors opportunities.
A recent example of the power of Trump’s tweets, from the 16th August, is when Donald Trump wiped $5.7bn off the value of Amazon $AMZN with a single tweet. The President tweeted:
Within two hours of pre-market trading after the tweet, Amazon’s shares lost 1.2% of their value.
And that wasn’t the first time…
The team at Trading.co.uk have identified Trump as one of the most influential movers of the market, therefore have created a tool for users to track Trumps moves, ensuring they are always one step ahead… check it out now!
Or… see some further examples of Trump’s antics!
One of Trump’s first influential tweets was on December 6th, 2016, when he attacked Boeing costs on Air Force One (seen below). The result of this was $1bn being wiped from Boeing’s stock market. That’s $1bn as a result of one tweet!
But it didn’t stop there, On Wednesday 10th May 2017 Trump hit them again… stocks of Lockheed Martin and Boeing Co, fell sharply with a 1.8% decline after former FBI Director James Comey claimed that Trump asked him to stop the investigation of former national security adviser Michael Flynn. By receiving real-time alerts of Trump’s Tweets a savvy trader may have seen this coming long before effects took place on the market, allowing them to make smarter investment decisions.
Author of this article: Becki Leighton from Trading.co.uk
