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This feels a lot more plausible to me than the idea that someone made sentiment analysis not suck. If you can respond faster than everybody else, you don't nee

This feels a lot more plausible to me than the idea that someone made sentiment analysis not suck. If you can respond faster than everybody else, you don't need sentiment analysis. Just bet on volatility increasing (aka. buy options on both sides) whenever a news story appears about a company.

xyzzy123 12y ago
I agree with you (that's a great idea), but if you're going to bet 100k+ you could afford humans in the loop. I guess you could tell the difference by looking at what options get bought.
- cperciva 12y ago
  Being able to afford the money which humans cost is easy. Being able to afford the time which humans cost is not so easy. The optimal strategy might be to trade within a few microseconds based on "something happened to this company, so something is likely to happen to its stock price", then trade a bit more a few milliseconds later based on "a computer thinks that this sounds like good news", and then make a third trade a few seconds later based on "a human pushed the (green|red) button when they saw the headline".
hueving 12y ago
There are many times a news story appears about a company that have absolutely no impact on the stock. In fact, the anticipation of a news story that turns out to be nothing note worthy will lead to a drop in volatility and make your trade a losing one. See every time a company announces earnings in line with expectations for example. "x company made 1 billion in profit" could fail to move the stock at all. Betting that news is market moving requires a decent amount of analysis of the news and the credibility of its source.
- cperciva 12y ago
  Betting that news is market moving requires a decent amount of analysis of the news and the credibility of its source. You don't need to be right every time in order to make a profit in the long run.
  - hueving 12y ago
    You missed the point I was making about news releases causing a drop in volatility when it confirms expectations.
    - cperciva 12y ago
      As long as news releases usually increase volatility, you're fine.
      - hueving 12y ago
        Right, I would argue that for many companies it doesn't though. Look at how many news articles mention aapl every day and it has no measurable impact on the volatility. You also have to be careful not to get wiped out by macro volatility which tends to move around a lot more than individual stock vols.
- nostrademons 12y ago
  You could do some very simple keyword analysis to filter that out, though. When words like "the deal", "in talks to buy", "to acquire", etc. appear, it's a pretty good bet that it has something to do with an acquisition, and also a good bet that volatility will spike. A lot of people here are saying "I wouldn't bet $2.4M on that false positive rate", but that's not how traders think. You only have to be right more often than you're wrong (or alternatively, very right to offset being wrong a lot more often) - "betting" is exactly what they do for a living. It's pretty much the perfect application for statistical machine learning - users never see how bad your algorithms are, and so it doesn't matter if the quality is worse than a human as long as the speed is better.
  - hueving 12y ago
    "the deal"... Is still being negotiated Company x has been looking "to acquire" a player in field y for some time and hasn't found any candidates yet. Keyword analysis by itself is almost completely useless.
    - nostrademons 12y ago
      Since when do newspapers write about the lack of something happening? That's sort of anti-news, isn't it? I could potentially see them writing something like that as a throwaway sentence in another article about the company, but the phrasing you've quoted is incredibly awkward and would probably never make it into a real news story. Also, an algorithm doesn't have to be perfect, it merely has to be right more often than it's wrong. So what if you get a few false positives and a couple of your trades blow up? That's why you're managing a portfolio and not dumping your entire assets into a single trade.
      - hueving 12y ago
        When it comes to market speculation, non-news is published quite frequently. Often time it comes in the form of stories that summarize what happened that week.

xyzzy123 12y ago

I agree with you (that's a great idea), but if you're going to bet 100k+ you could afford humans in the loop. I guess you could tell the difference by looking at what options get bought.

cperciva 12y ago
Being able to afford the money which humans cost is easy. Being able to afford the time which humans cost is not so easy. The optimal strategy might be to trade within a few microseconds based on "something happened to this company, so something is likely to happen to its stock price", then trade a bit more a few milliseconds later based on "a computer thinks that this sounds like good news", and then make a third trade a few seconds later based on "a human pushed the (green|red) button when they saw the headline".

hueving 12y ago

There are many times a news story appears about a company that have absolutely no impact on the stock. In fact, the anticipation of a news story that turns out to be nothing note worthy will lead to a drop in volatility and make your trade a losing one. See every time a company announces earnings in line with expectations for example. "x company made 1 billion in profit" could fail to move the stock at all. Betting that news is market moving requires a decent amount of analysis of the news and the credibility of its source.

cperciva 12y ago
Betting that news is market moving requires a decent amount of analysis of the news and the credibility of its source. You don't need to be right every time in order to make a profit in the long run.
- hueving 12y ago
  You missed the point I was making about news releases causing a drop in volatility when it confirms expectations.
  - cperciva 12y ago
    As long as news releases usually increase volatility, you're fine.
    - hueving 12y ago
      Right, I would argue that for many companies it doesn't though. Look at how many news articles mention aapl every day and it has no measurable impact on the volatility. You also have to be careful not to get wiped out by macro volatility which tends to move around a lot more than individual stock vols.
nostrademons 12y ago
You could do some very simple keyword analysis to filter that out, though. When words like "the deal", "in talks to buy", "to acquire", etc. appear, it's a pretty good bet that it has something to do with an acquisition, and also a good bet that volatility will spike. A lot of people here are saying "I wouldn't bet $2.4M on that false positive rate", but that's not how traders think. You only have to be right more often than you're wrong (or alternatively, very right to offset being wrong a lot more often) - "betting" is exactly what they do for a living. It's pretty much the perfect application for statistical machine learning - users never see how bad your algorithms are, and so it doesn't matter if the quality is worse than a human as long as the speed is better.
- hueving 12y ago
  "the deal"... Is still being negotiated Company x has been looking "to acquire" a player in field y for some time and hasn't found any candidates yet. Keyword analysis by itself is almost completely useless.
  - nostrademons 12y ago
    Since when do newspapers write about the lack of something happening? That's sort of anti-news, isn't it? I could potentially see them writing something like that as a throwaway sentence in another article about the company, but the phrasing you've quoted is incredibly awkward and would probably never make it into a real news story. Also, an algorithm doesn't have to be perfect, it merely has to be right more often than it's wrong. So what if you get a few false positives and a couple of your trades blow up? That's why you're managing a portfolio and not dumping your entire assets into a single trade.
    - hueving 12y ago
      When it comes to market speculation, non-news is published quite frequently. Often time it comes in the form of stories that summarize what happened that week.