I wanted to share a strategy I have been working on. Disclaimer, I have created the following strategy entirely off my own ideas and it does not reflect any beliefs or views held by Alpaca.
Okay, great. So a lot of people have probably heard of r/WallStreetBets, which is a Reddit channel devoted to discussing stock picks and general market sentiment. A lot of the members of this channel practice relatively aggressive strategies that usually come along with a great deal of risk. Additionally, there is very little, if any, statistical or fundamental reasoning behind the strategies suggested.
I am in the process of implementing a sentiment analysis program based on my own keywords however in the meantime we can use Quiver Quantitative’s WSB sentiment analysis charts to pick our stocks. As I am writing this post you could see the S&P 500 performed -0.92% today while the Portfolio determined by the sentiment in WSB performed -0.97%. This difference does not seem to be significant, however, from referencing the chart on their page, you could see in times of higher volatility there can be a great discrepancy between the two.
Now that I have an idea, time to turn it into a strategy. My hypothesis is that a lot of people tend to reflect on their trading decisions after the market closes. One reason for this could be that people are not as preoccupied with trading/working during non-market hours. This can allow one to catch up on market news, read through WSB, or prepare their trades for tomorrow the night before. Therefore I believe that the WSB Sentiment from the off-market hours before the next market open can be used as a predictor for the first 30 minutes of trading the next day.
Then based on the sentiment one can either long or short the equity, but only in the first 30 minutes of each trading day. For instance, you could set it up where the orders are sent in at the market open and you liquidate at 10 a.m. EST (30 minutes after the market open).
Moving forward I am planning to implement this into a paper trading strategy that I will share with the community. I am open to suggestions, feedback, questions, new ideas, etc. so please let me know your thoughts.