Can Twitter Sentiment Analysis Predict the Stock Market
Ugly over at Uglychart.com just posted a link about research that sentiment mined over 10 million tweets from 2008 and was able to predict daily market behavior to an accuracy of 87.6%Â . Â While the post is vastly interesting from a text & sentiment miningÂ perspectiveÂ using social media, and the application of it to the stock market, I’m not 100% convinced its very viable.
Why? Well I tend to echo some of the comments left by readers at the bottom of the original post. Â For example, once this “edge” is discovered by general market participants, it tends to get discounted and the edge goes away. Â So what we read here today is probably already discounted by the market and is just routine “business as usual.”
Now, I certainly don’t mean we should abandon text & sentiment mining for the markets but rather we should continue to use these tools to develop our own secret edges and evolve them as the market changes. Â Follow the advice of poker players and underarmÂ deodorantÂ manufacturers, Â never show your hand and never let them see you sweat.