Can Twitter enhance your trading?

Any investor will benefit from keeping recent with market movements, and Twitter is well-suited to quickly informing investors of announcements as they occur. And, with over 2 hundred million accounts, and over 20,000,000 active daily users, Twitter is a useful real-time sentiment poll.

A study performed by the Technical University of Munich, analysing Two hundred and fifty thousand Twitter messages relating to SP 500 listed corporations over a half year period, found that investors using Twitter sentiment to steer share prices received a mean rate of return of almost 15%.

They also found the sentiment of tweets to be associated with aberrant stock returns and message volume was related to the volume of trades on the following day.

The main problem with using Twitter for trading is there is so much unrelated information out there. Stocktwits.com and Tweetinvestor.net are 2 trading-specific sites.

Like Twitter, StockTwits is a micro-blogging service, but it is focussed on the stock market and intended to be an information service for investment. Users can use their Twitter details to log in and can limit the conversation to their own portfolio, or to trusted sources.

Tweettrader was launched by Timm Sprenger, one of the financial consultants from the Technical University of Munich study. Currently operating in Beta, Tweettrader compiles stock-related social media information into graphs displaying sentiment on different markets and different stocks alongside micro-blogging.

Although investors don't appear to be using Facebook or MySpace to boost their results, some trading web sites are beginning to use Facebook-like features to boost traders' experiences. TradeKing.com and E*Trade Financial are among those starting to feature notice boards, blogs, live chat rooms and podcasts.

Meanwhile, Openbook.etoro.com is a trading social network made by online trading web sites Etoro and Currensee to build communities to share and discuss trades, ranking top traders and giving users the opportunity to copy their trades.

Launched in late 2010, OpenBook aims to help greenhorn traders find out more about the market by 'following' other traders, while trade-copying intensifies the impact that traders can have on the market. The platform already has over 1.5 million users worldwide, categorised by trading style, and it helps them monitor their trading history with detailed performance breakdowns.

Using a micro-blogging service, like Twitter, may be a valuable addition to your trading research, but I wouldn't recommend using it as your sole trading indicator, especially when there is a flood of other technical and fundamental information available. Similarly, the copying function on OpenBook could help new traders see how more seasoned investors time their entries and exits, but it is also necessary to research the reasons behind these trading calls rather than just blindly imitating them.

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