Toolbox for Profits: How News Analysis Unlocks the Stock Market
Starting with our founder’s appearance at Wealth 365 on Monday, we’ve been reviewing how the NewsQuantified Concept went from a research idea to a platform that helps our users find profits on a daily basis.
- On Monday, we recapped Oliver’s presentation with Dr. Joshua Livnat (NYU Stern). News-based trading offers a uniquely risk-neutral opportunity without necessarily relying on fast, one-day trades.
- Tuesday, we reviewed Dr. Livnat’s work in a bit more depth. His research team suspected that extended hours trading played a unique role in the marketplace. To capture and detect its effects, however, his team had to restrict its analysis to days in which notable news events occurred.
- Wednesday, we looked at the practical ingredients necessary to build a viable platform for profiting on these research insights. Doing so right takes a substantial investment, and investors who can’t afford such an outlay are at a profound disadvantage. And that’s where NewsQuantified enters to level the playing field. A professional grade analytics platform that’s accessible (financially and technically) to retail investors.
Much of our development work centered on creating analytical possibilities for evaluating wildly divergent qualitative categories of news events. For instance, two of our most common news event types, Earnings Releases and Analyst Actions, pose very different research questions. The evaluation of earnings releases centers on 1) comparing the result to expectations, and 2) analysis of how markets have reacted to earnings results in the past.
Meanwhile, understanding the likely impact of new price targets from prominent financial analysts necessitates a different set of data. First, we need to know whether the rating constitutes an upgrade or downgrade from previous price targets. More vitally, we need to know whether the analyst in question is actually influential. This means profitable analyst-based trading needs good historical data on analysts’ past predictions (and how they influenced actual markets). Good data on this front requires a great deal of specificity. An analyst whose opinion is widely recognized on energy stocks, for instance, might issue ratings for mega-cap tech stocks that are largely ignored. High-quality data (like NQ’s) means stock- and market cap-specific histories for analysts.
All of these opportunities for drilling deeper into the data can feel a bit intimidating to retail investors. Indeed, the jump from using back-of-the-envelope metrics like P/E ratio to a professional-grade analytics platform may inspire some extra learning. But it’s important to understand that most of our users don’t make use of every single piece of our vast dataset. Savvy use of even a small part of the platform can be a perfectly viable foundation for a sustainably profitable trading strategy.
That’s because the news-based trading approach unlocked by NewsQuantified isn’t a single “strategy” at all. Rather, it’s a toolbox for identifying, measuring, and profiting on the informational dynamics of the stock market. While often employing diverse strategies, news-based traders are always asking the same fundamental question: “In which direction will the news event push the stock, at what magnitude, and for how long?” They’re systematically profiting on the many specific ways in which the structure of the stock market creates lags between a news announcement and all resultant trading. The right answers to these questions lie in the data, and they’re sufficient to find an excellent profit margin on a strong majority of trades.
But how can we tell which news events are likely to have the strongest, most dramatic effect on stock price? That will be the subject of the conclusion of this week’s blog series tomorrow.
If you’d like to learn more about using the news to build a sustainably profitable trading strategy, we’re pleased to invite our readers to our next free virtual training seminar. We don’t put on a hard sell, just an up-close tour of our trading platform and how it helps smaller investors get in on the quant-driven profits Wall Street has been cashing in on for decades. You can claim your spot in our next session using the button below: