But can Twitter predict the stock market trends and thus help you become a better stock market trader?
Maybe. Most likely actually. There is a correlation between the volume of cash tags (as described above) and the real stock market performance. According to a study by computer engineers and scientists that accumulated the data of thousands and thousands of messages on twitter. Obviously, if there's 'buzz' around a certain stock, whether that's positive or negative, there's something going on right? I like to call it 'follow the herd trading', you join the group of people that has already gathered in the market place and eventually you find yourself shouting just as loud as the rest of the crowd. But does that help you to become a better stock market trader?
I hate to say it, but you have a better chance to make money since all that shouting - believe it or not - causes volatility in the stock that's been shouted about. The same goes for twitter. But how do you know which stock is 'hot' or 'cold' on twitter? If you type in the search on twitter $MSFT it will show you what's been talked about, but not how many messages (the trend) there are really. For this you would need to go to StockTwits. StockTwits will filter out the messages that are posted on twitter about, you guessed it, stocks! As of this time of writing for example, the trend is $TSLA $MBI $CREE $EA $CAB $PZZI $TNA $BBRY $LOW $SCHW $BAC $PFE $GNC $EXPE $SODA $FAS $GMCR $XLU $SNTS $JNJ $AMZN and $XLE, which means all of these stocks are talked about at the moment. If you click on one of these stocks on StockTwits you can see if the overall sentiment is bullish or bearish. Another cool thing is that you can also see images (charts), provided that they are posted with the tweet, about the stock. This is a very handy tool in your trading toolbox and will definitely help you to become a better stock market trader. It also works for forex and etfs if you prefer those over stocks. For example the EUR/USD is indicated on twitter as $EURUSD, the same goes for any etf symbol you have your eye on. I wrote a similar post about this if you want to know more about 'trading with twitter'.
In order to make money in the stock market you need volatility. If there was no volatility the stock price would always be the same - and that's not only boring - it's also makes no sense because there wouldn't be any money in it. The more volatility though, the more risk. If there are so many people tugging on that particular stock, it's stock price is bound to go up and down, if you catch the trend you're golden! But that's exactly the reason why I think twitter is such a valuable asset in your trading toolbox. It spots trends! The next time you're wondering which stock to trade - use twitter and especially StockTwits. It can't hurt to see what the majority of other people are talking about. I used it a few times myself, and I can tell you that it certainly helped me to become a better stock market trader!