How To Use Twitter For Traders

TWITTER TRADERS

With the advent of social media, 21st century traders have access to a new tool. In this article, I discuss how financial market participants are leveraging social media, with a particular focus on Twitter as a key resource for following macro news on important market movements. I’ll cover notable examples of the advantages I’ve seen over the past few years with social media for businesses, as well as helpful insights on how to use social media effectively and spot fake news!

Before I go any further, I want to point out that I’m not going to provide an in-depth look at WallStreetBets’ Reddit retail army, mostly on the premise that I haven’t used a blog myself (and I’m not going to). So for those of you looking for a 101 guide to Reddit deals, this is not the report for you.

TRADE THE NEWS

One area that DailyFX covers broadly is “Global Macro News Trading”, which is closely related to how you use social media to analyze financial markets. Therefore, it is important that you first have a solid understanding of the fundamental drivers behind the asset being traded and keep yourself informed of the current themes/narratives. With an understanding of key market drivers, and current market positioning/sentiment as a trader, you can better prepare the market to react to new information. Remember that the current price of an asset reflects all available information (or should be, according to the efficient market assumption). When new information is subsequently released, be it economic data or central bank interest rate decisions, asset prices typically move to find new prices that reflect that information.

However, there is a view that a lot of macro news is just noise and has no major impact on the assets you trade, and I share that view to a certain extent. As incoming messages flash on the screen, you can decipher them by asking two questions:

• Is this information new, and if so, is it different from the market narrative (consensus/expected)
• Isn’t this information amazing?

If you answered “no” to both of these questions, you can say with a clear conscience that the new information is not moving the market. I understand that this is a skill that cannot be mastered immediately and, frankly, may never be fully mastered. Like everything you do in life, experience will matter over time and will go a long way to help you effectively handle important macro news flows.

As I mentioned above, DailyFX has covered this topic in great detail, so follow the link below for a complete and comprehensive guide to news trading.

THE ROLE OF TWITTER

Whether you’re a millennial on TikTok looking to become the next viral sensation, or someone who browses Instagram endlessly, social media has fundamentally changed the way we interact with each other and spread new information. Since Twitter’s inception in 2006, the microblogging platform has grown significantly in its user base and has become a well-known source of breaking news, including journalists, government officials, business executives and even bored billionaires who have come closest to events. People are watching you with instant updates, Elon (who might end up owning the platform).

WHEN DID TWITTER BECOME IMPORTANT FOR TRADERS

AP “Fake” Tweet (April 23rd, 2013) | DJIA -1% in Minutes Before Retracing

It’s hard for me to say because I’ve only been in the market since 2014. Even looking back, there was a pivotal moment in the aftermath of the 2013 “hack crash” that made it clear to Twitter’s growing importance in financial markets. According to the Associated Press, a hoax reported that there were two bombings at the White House when President Barack Obama was injured. That temporarily wiped about $130 billion from the U.S. index before falling back within minutes. Shortly after the fake tweets were posted, a White House spokesman pointed out that the president was fine, while the AP later explained that they had been hacked. Therefore, this has accelerated the process of traders adopting Twitter as a means of monitoring breaking news, given that tweets can have a noticeable impact on financial markets. However, this example also underscores that Twitter is an unfiltered newswire where the authenticity of messages is often questioned.

EXAMPLES: TWITTER AHEAD OF TRADITIONAL NEWSWIRES

Over the years and more recently, Twitter has repeatedly reported macro and corporate news faster than traditional news outlets (Bloomberg and Refinitiv) in light of notable political events, notably Brexit and the US-China trade war. If this happens, I think it’s an advantage for traders relative to the market. By market I mean algorithmic trading headlines from Bloomberg and Refinitiv. But to cut the inches, I’ll run through a few noteworthy examples to illustrate the advantages Twitter offers.

Oil prices tumbled as traders reacted to the outbreak of the coronavirus crisis, with the first wave of global lockdowns sending demand for oil plummeting by a third. Things got worse for the oil market after oil prices fell to 18-year lows after Russia and Saudi Arabia launched a price war.

At 15:30 GMT on April 2, 2020, CNBC posted the following tweet. Over the next 42 seconds, Bloomberg posted the original tweet, while at 3:34.49pm a flashing red BBG headline popped up. On the other hand, Refinitiv executed the full tweet at 15:32.39. Brent rose more than 37% in the eight minutes from the tweet to the top.

In a political tradition in the age of social media, market participants have become accustomed to monitoring the Twitter account of former U.S. President Donald Trump for policy announcements affecting markets, mainly around the trade war with China.

On August 1, 2019, U.S. President Trump announced a 10% tariff on $300 billion worth of Chinese products, escalating tensions in the trade war with China. USD/JPY fell from 108.14 to 108.00 before the tweet reached traditional news outlets, and after Bloomberg reported the tweet, USD/JPY continued to move lower and fell to 107.26 over the next 30 minutes low.

CASE STUDY 3. BREXIT, OCTOBER 2020

During the Brexit event, the first point of communication for many political journalists is Twitter. This means that traders following senior reporters often get the latest information from the Westminster floor, giving them a speed advantage over BBG/Refinitiv owners. The example below shows one of many occasions where Twitter was faster at covering the latest Brexit news. Of course the risk is in the veracity/reliability of the headline, but a lot depends on the reporter who published the report.

On 1 October 2020, a political reporter tweeted that the chance of a Brexit deal had increased from 30% to 70%. As a result, GBPUSD surged from 1.2841 to 1.2871 (Refinitiv) in the almost 4 minutes before the tweet crossed the line, then set a new $1.2 36 minutes after the tweet was picked up by 0.2871 to 1.2976 by Refinitiv.

Source: Bloomberg

HOW TO SPOT “FAKE NEWS”

The only obvious downside to Twitter is the spread of misinformation, or as Donald Trump likes to say, “fake news.” News streams via Twitter tend to be less credible than more traditional news sources (WSJ, Sky News, BBC, CNBC). However, there are several steps you can take to identify fake news:

• Is the account verified, me. H. Does the account have a blue tick? If this is the case, it adds to the authenticity of the account’s tweets.
• Followers/Followers ratio. Accounts that provide news generally have lower follower accounts compared to followers.
• Misspellings in profile names and bios are common among fake accounts, especially those impersonating other accounts, with letters replaced by numbers (“O” and “0”).
• Twitter join date. Fake accounts usually only appear on Twitter for a short period of time, as they are usually banned quickly. This is also related to the number of tweets, with fake accounts significantly lower than official news accounts tweeting 24/7.

HOW CAN TRADERS EFFECTIVELY MONITOR TWITTER

An effective way to monitor macro messages on Twitter is to use tools like Tweetdeck. This allows users to filter glitches and focus on news related to the assets they trade. In addition, Tweetdeck provides an efficient way to stay abreast of breaking news, which is very important for global macro traders who trade short-term. The best thing about Tweetdeck is that it’s free to use. All you need is a Twitter account.

As shown in the image below, Tweetdeck can be monitored through a custom list bar, making the platform an efficient news streamer for quickly spotting breaking news.