How To Make Money In Stocks Trading Using Google Trends

Have you ever heard of Google Trends, the website that enables you to analyse keyword trending at the moment in the world. Well it can also help investors make money in stocks trading! At least so researchers say at the University of Warwick Business School led by Tobias Preis. So, in today’s article, we will analyze the results of this study and its application to the stock market.

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How to make money in stocks trading using Google Trends

SCIENTIFIC RESEARCH

The scientific study began by analyzing the volume of queries on Google Trends using 98 keywords,some related to the world of finance and economics (such as metals, stocks, finance, forex, house,unemployment and health) and other completely unrelated ( such as ring, train, and fun kitchen).

Next, the researchers looked for correlations of these “keywords” with the performance of the Dow Jones Industrial Average, the oldest and classic of the indexes on Wall Street.

In practice, the tradingsystem that have tried to make work this way: if the volume of searches on Sunday exceeds the average of the previous week, the next day you sell the Dow Jones index (putting “short”), and then buy it back at the end of the first trading day of the following week.

It does the reverse process itself, always on the Sunday, the volume of searches down: this means that the next day…. you have to buy! In conclusion, this simple system has led to excellent results with the key word “debt” in the simulation done on the computer, in fact, the profit was of 326% in 7 years! Against a gain of only 16% done with the strategy of “buy and hold”, that is the most classic is to buy the Dow Jones in 2017 and sell it seven years later.

REASON FOR SUCCESS

The excellent results achieved by this particular methodology, according to British researchers themselves, have a very clear and simple motivation: Google searches are an indication of investment decisions! But if these take place on Sunday, is a clear symptom of anxiety in the mass of investors.

This, will therefore result in an increased likelihood of an explosion of volatility to the reopening of the Stock Exchange, Monday.

How do you explain the study, “the collapse in the financial markets are preceded by periods of investor anxiety. And in these times investors are looking for more information before deciding whether to buy or sell at the end. ”

However, this technique cannot be considered a true innovative new! In the past, researchers at the Indiana University of Manchester and have tried to find correlations between social networks and markets! From 9.8 million tweets in 2008 (the year of the crack of Lehman Brothers), scholars had developed a system based on Google to label the messages in terms of “emotional”, then combining the result with a profile of emotional states in order to group the tweet in 6 different “dimensions”:
calm, alarmed, sure, vital, kind, happy.

The result, it is surprising: the emotional factor has largely been shown to be closely connected with the Dow Jones based on some mood states.

When the level of calm in messages is changed in a matter of 2-6 days the index was moving in the same direction. And with an accuracy rate up to 87%.

TIES BETWEEN RECENT SOCIAL NETWORK AND TRADING SYSTEM

A few days ago Twitter profile of the famous AP news agency was hacked by a hacker, where a tweet announcing the explosion of bombs at the White House and the wounding of President Barack Obama! A buffalo that, according to the Wall Street Journal, has cost the U.S. stock market a
momentary collapse of 200 billion dollars!

CONCLUSIONS

In today’s world, where social are becoming “an integral part” of our lives, it is logical that the Internet has become a mine of information for those who analyzes the “behavioural indicators” of the masses in the real world. And the markets, sociologically speaking, have always been an excellent test.