Systematic Advantage #29: Systems react to price, not a social media post
In today’s digital age, social media has become influential in various sectors, including the financial markets. However, while human traders may be swayed by rumors, speculations, or trending topics on social media platforms, systematic trading systems are immune to such influences. They operate solely based on predefined rules and market data, primarily reacting to price changes.
A systematic trading system relies strictly on quantitative data, mainly price and volume information. Algorithms are designed to process this data and make trading decisions based on mathematical models. This approach eliminates any potential bias or emotional reactions triggered by non-quantitative information, such as a social media post. For instance, a tweet from a high-profile individual might incite panic selling or impulsive buying among some traders, but a systematic trading system remains unaffected.
The advantage of this approach is twofold. First, it ensures that trading decisions are always driven by hard data rather than subjective sentiments or unverified information. This can lead to more consistent and reliable performance. Second, it insulates the trading process from the volatility and unpredictability often associated with social media-influenced trading. By reacting to price changes rather than tweets or posts, systematic trading systems can maintain a steady course, even when social media storms are causing waves in the market.
