How Social Media Can Help Your Trading

07/11/2013 6:00 am EST

Focus: TRADING

In the evolution of trading intelligence, first there was the tape, then the Bloomberg machine, AOL instant messenger, and now there’s social media, and Brian Lund of BCLund.com makes the case for how you can use it to make more informed trading decisions.

There are a lot of sources for end-of-day market analysis. This information can be used for anything from forming a macro picture of the markets to finding potential trade setups for the coming day. But one of the unique benefits of being on StockTwits during the trading day is the actionable info you can glean from the streams.

Let me give you an example of something I tweeted yesterday and how you could have used it in your trading:

“Just popping its head over that down trendline here. SPY

chart
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Now what was so special about the information in this tweet? It doesn’t seem to have any deep analysis attached to it, and in fact, truth be told, yesterday I had no time for deep analysis as I had two sick kids and was working from home. However, in between the coughing and sneezing and complaining, I happened to glance at the SPY chart and noticed that price was right at a down trendline. That seemed significant enough to me to tweet, and if you saw it and were trading yourself, it should have factored into your plan.

This chart in of itself wasn’t going to make you any money, but it was a “heads” up, something to be aware of especially if you were day trading. It suggested that the SPY was at a potential resistance area, and that by watching it on a shorter time frame, you could get a better idea of what was going on.

If SPY on a five-minute chart gapped up, based, and then broke into new highs for the day that would be a confirming sign for any individual long setups you were watching and contemplating entering. However, if the SPY gapped up, faded, and just went sideways (as you can see it did in the chart below), then that would be a caution to hold off on any new longs, or at the least enter them with a reduced sizing.

chart
Click to Enlarge

And if because of that tweet you were closely watching SPY, and saw that it was going to close right at the down trendline, it might have influenced you to pare down a swing position you have been holding.

The point is that not all intra-day information is black or white, long or short, buy or sell. However, if you spend enough time on StockTwits you will get a feel for which people and/or streams can give you valuable pieces of information during the day, which if used properly can help you make better informed trading decisions.

By Brian Lund of BCLund.com

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