What it Takes to Build a Viable News-Based Trading Platform (and Why You Need One)

Yesterday, we took a look at some of the most vital research behind the NewsQuantified approach to trading. News-based trading is so successful because markets take time to absorb the full impact of events (often taking up to a full quarter, according to the data). So why aren’t more traders pouring into this approach?

Because, while it possesses an elegant simplicity at a conceptual level, putting together a viable news-based analytics platform is a lot more work. On Monday, Oliver discussed all the work that went into building a platform that could profit from news, academically backed by studies of researchers like Dr. Joshua Livnat (NYU Stern). To have any hope of building a sustainably profitable news-based trading operation, an investor will need:

  • Subscriptions to a series of news-wire services (no, one isn’t good enough).
  • A full historical dataset of stock prices, which subsequently has to be integrated with past news data.
  • More specific data on “Analyst Actions” – making sense of these unique news events is essential.
  • Programmers to link this data together into a  genuine database. And more programmers to create a usable interface for non-programmers to utilize this database. 

Collectively, all of these necessary resources represent a serious cost (Oliver spent hundreds of thousands for data and programming for an early prototype).  It’s important to understand that the sort of professional grade analytics necessary to achieve market-beating profits aren’t cheap (and never free). Of course, access to this data is ultimately far less costly than bleeding profit margin to more data-savvy players on every trade.

Many of today’s investors seem to believe that free online resources offer all the information they need to profit on the stock market. Free, insightful information on investing is certainly more prolific than ever, and we always encourage our users to make use of every resource available. But it’s just as important to understand the limitations of these tools, from lack of real-time updates to incomplete historical data. And these free resources will never touch quantitative analysis of specific news events over time.

Retail investors can and do succeed in today’s marketplace: that’s a fact. And the best smaller investors have internalized the fact that they’re competing with huge institutional players for profits in a hyper-competitive marketplace. You can bet that institutional investors like hedge funds are leaving no stone unturned in the search for profits. Whether it might be possible to compete with these big players without pro-grade-data is beside the point. Why fight with one hand tied behind your back?

Indeed, the concentration of important stock-related news events in extended-hours trading offers a vital advantage for smaller investors. Remember, extended hours trading features far lower volume than the regular trading session. Often, big investors will be managing too much money to truly take advantage of after-hours movement. Smaller investors have the operational agility to take advantage of such news events on their own terms. That’s not the only strategy for profiting from waters too shallow for hedge funds. Micro-cap stocks, for instance, often exhibit low enough trading volumes as to be prohibitive for major fund managers. These smaller stocks represent a strong ongoing profit source for NewsQuantified users.

At its birth, data-driven investing was a major boon for big investors: smaller investors could never own the mainframe or employ the software developers necessary to turn these ideas into actionable strategies. Now, the playing field is leveled: smaller investors have access to the data hedge funds have been profiting on for years, and the agility to move where the big banks can’t.

There’s no better place to see this approach up close than one of our totally free training sessions. We don’t put on a hard sell—simply a demonstration of how powerful our platform can be. You can claim a spot in our next available session using the button below:

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