Mostly… fixed income and cross product eTrading

March 7, 2007

Algorithmic Trading’s Use of News Feeds

Filed under: Algos, etrading, Nuts and Bolts — holky @ 7:30 am

Dow Jones has launched a data feed that delivers news items in XML format which can be rapidly processed by electronic trading programs(so same sort of offering that Reuters recently launched). It says its new Elementized News Feed delivers data directly to quantitative-analysis models and automated trading programs and is designed for both buy and sell side firms involved in algorithmic trading, quantitative analysis and execution management. The ultra-low-latency service delivers economic and corporate news in precise and discrete elements in XML-tagged fields. This eliminates the need to parse unstructured text, allowing trading models and computer programs to process, interpret and take action on breaking news in milliseconds.

If you’re thinking about using this sort of thing, isnt the first question how much trust you are going to put in their tagging?  whats the error rate of items – how many are edited and retagged (after your algo machine has done something on the basis of the first tag)?   Who does the tagging? – if it’s the journalist do you know for sure all of their journalists will tag in consistent fashion?  if its a separate “tagging” desk doing this then how much latency is added?  And of course is the backtesting history tagged by hand by the same people and with the same time pressures so the history is consistent? 

Advertisements

9 Comments »

  1. We have seen that tagging actually buys you very little. The effort is in developing your ontologies and business rules, which is a very specialized art. The output of this process is usually some kind of scoring (from -x to +x) for an individual news story.

    You have to come up with your own methodology of doign trend analysis, correlations, etc.

    Another question is how you factor this scoring into a trading model. News might be one of many inputs.

    Comment by marc — March 7, 2007 @ 12:05 pm

  2. As far as I know this kind of news feeds oriented to automated trading are really, really simple. A couple of lines at most with your buy and sell sides and little more. The algorithms applied aren´t really very different from tradicional automated algorithms agains real feeds. A good advantage is that you can switch your feed provider very very easily.

    Comment by martin — March 7, 2007 @ 7:16 pm

  3. marc’s comment re -x to +x is a good prompt for me to explain the big alarm bell – specifically where the third party feeds contain their tag to convey the “severity” of the news item; youll have gone in entirely the wrong direction if the provider subsequently changes their -10 to a +10 if that’s a material attribute in deciding how much of the particular action you are going to take.

    So on the basis the agreements when taking the feeds are full of disclaimers from using them for anything that could in any way lose you any money, the dominant provider in a year or so is likely to be the one who has the most accurate hit rate with their classification/tagging – the one whose feed you can trust the most to be right first time.

    Comment by holky — March 7, 2007 @ 8:22 pm

  4. WSJ says Reuters plans to begin selling today a computer program that will scan news articles, measure whether companies are getting positive or negative news coverage and trigger stock trades based on the information.

    It is part of Reuters’s push into the market for computer-driven stock trading. The product, which will initially track just stories that appear on Reuters news wires but will soon include others, is aimed at hedge-fund and bank-trading-desk clients who already subscribe to Reuters.

    Based on a list of 20,000 words and phrases, the new program scores news articles based on how often words such as “excellent” and “disappointing” appear. If lots of favorable articles are written about a company, it gets a high score. It also looks for new information in articles, alerting investors to reporters’ scoops.

    Comment by holky — April 30, 2007 @ 6:19 am

  5. more detail in http://www.finextra.com/fullstory.asp?id=16869 – Reuters introduces machine-readable sentiment scan; acquires ClearForest

    Comment by holky — April 30, 2007 @ 2:20 pm

  6. In case you dont already follow it, apama’s “event processing blog” digs deeper into this in action; covering the “Apama Partners with Dow Jones” news, and also what elementized news actually looks like –
    http://apama.typepad.com/my_weblog/2007/06/elementized_new.html

    Comment by holky — June 13, 2007 @ 5:58 am

  7. […] + News Feeds, again I was thinking about the use of news feeds in algorithms again, and wondered why Reuters and Dow Jones and all the other vendors trying to flog these feeds […]

    Pingback by Algo + News Feeds, again « Mostly… — June 26, 2007 @ 7:37 pm

  8. We are using a web 2.0 application now to provide instant autotrading functionality.

    Comment by mygivingtree — November 22, 2008 @ 1:49 am


RSS feed for comments on this post. TrackBack URI

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Blog at WordPress.com.

%d bloggers like this: