The Gateway to Algorithmic and Automated Trading

Trade all about it

Published in Automated Trader Magazine Issue 17 Q2 2010

Headline news is just potentially tradeable data delivered in a spectacularly inconvenient form. You can get it easily enough, but the big question is whether you can use it effectively. Barry Johnson discusses the evolution and practical application of news-analysis techniques to algo trading.

Efficient data delivery is crucial to successful alpha generation. But low-latency data delivery is only part of the solution. To make effective use of any data feed, you need to optimise your technology's respose to the data that arrives: speed matters here, as does doing the right thing. But there's also a case for widening the universe of data from which you're taking feeds. If everybody is reacting in the same predictable way to the same (for example) non-farm payroll data, it follows that everybody else has had the same thought while reading this: how about reacting before the rest, and/or unpredictably?

What if there's data out there that does have a potential correlation to market movements, but that most people can't seem to fit into their systems? Yes, we are talking about news, and no, we haven't forgotten that this has been tried before. That's the point. Barry Johnson, author of 'Algorithmic Trading and DMA: an introduction to direct access trading strategies', argues that it is possible to use headline news as if it was tradable data - and by doing so, to gain an edge. Smart order-routing is one thing; smart data-usage is quite another.

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