News is one of the major forces that move the market. News data is a quantifiable and when incorporated into a trading strategy, news can be a powerful advantage for investors.
Each week, a large amount of data, including economic and corporate news, surveys and reports, is being released and commented on. In addition, social networks are increasingly becoming a source that can influence the financial markets. Twitter alone has been responsible for some notable market movements over the past years.
In 2015, after Tesla Motors Inc. Chief Executive Elon Musk tweeted about a new product line the company was about to unveil, Tesla’s shares leaped by 4% ($ 1 billion of its market capitalization). Trading on news can be a valuable tool for the investors. News often spur strong short-term moves in the markets and the ability to identify sentiment, trends and interdependencies in the news, creates opportunities for traders.
The drawback of implementing news-based strategies in manual trading is latency resulting from large amount of data available from various sources. It has always been the case that institutional firms had faster connections and quicker execution that retail investors, which gave them a decided advantage when trading market-moving news.
Automated trading made it easier to capture and leverage predictable events, but it has not been able to correlate news feeds with real-time financial data to deliver greater performance. However, artificial intelligence technology seems to have the solutions. Intelligent Advantage Since news releases often trigger immediate moves in the markets, the success of trading these moves largely depends upon time factor.
Riding the momentum is a key element of news-based trading strategies. Artificial intelligence data collection technology and complex events processing algorithms are able to gather and analyze big data in minimum time, when provided with ultra-low latency feed of financial news and information. AI systems work by ingesting large quantities of news, including annual reports, press releases and social media, in relation to a particular asset.
Different types of software that analyze textual information have been used decades, but they typically required relatively long time to process the information and large amounts of computational power. AI surpasses its predecessors with greater ability to extract meaning from texts, by reducing all the information to keywords falling into specific categories. Each chip deployed in AI system is designed to perform quantitative or qualitative data analysis.
The AI system then considers all the collective factors to evaluate future price behavior and makes a trading decision accordingly. To summarize, artificial intelligence technology advancement has helped event-based momentum traders to achieve a performance edge, enabling them to efficiently integrate news with quantitative market data and gain significant advantage over the competitors.