For decades researchers were interested in automatically detecting sentiment in texts. However, it was only in the last decade or so that professional trading institutions have been able to profitably do so. Information is converted from verbal (the news article), to numeric (the change in stock price) much quicker than in the past.
In the case of blue chip stocks, in the past positive or negative news could take days to reflect in the stock price. Today, because of algorithms using the same technology as we do, the investment decisions can be made in less than a second.
But, these large funds have one disadvantage to private investors, their sheer size. While you as a small investor might find it attractive to make $500 from a day trade investing only $2000, a large quant fund would not even bother with it. This is where SmallCapRockets comes in. By taking the power of this technology we are able to produce a portfolio uniquely attractive to private investors looking to capitalize on less covered small cap opportunities.
After scanning thousands of articles in real time using a scanning algorithm (or scraping in its technical term), we determine which article effects which stock. From there another algorithm determines whether this news is positive or negative, and finally a scoring methodology is applied. The more abnormal the coverage amount, and the stronger the sentiment the more likely we are to recommend that stock.
By analyzing recent stock price movements our algorithms identify stocks which under-reacted to positive news or over-reacted to negative news. The newsletter returned 4.11% for those who held the stocks for the recommended 24 hour period, far outperforming the S&P500’s return for the period of 1.4%.
SmallCapRockets offers amateurs a chance to day-trade, with clear entry and exit points, and a scalable model (you can invest in just the top pick each day, or all 5). For more advance traders it offers a strong starting point for detecting high value swing trades which can crush the annual market return in just one day.