A Word Of Caution On Blog-Based Algorithms

Dear Algorithm-Based Hedge Funds,

Recent reports have indicated that several of you are hard at work on automating the “sentiment” found on blogs and social networks.  While you may be attracted to the sheer novelty of creating an algorithm based on what bloggers and tweeters think, you may want to hold off on the actual trading.

I am a fairly well-known denizen of the financial blogosphere so take my word for it – coming up with trading formulas based on the following oft-heard sentiments may not be worth the expended brain power.

Some Typical Finance-Related Social Media Sentiments:

I’m at Ulysses Bar with @DBagMediaGuy

RT @SpeedieTrader Long $FAZ and also Short $FAZ

Since everyone thinks this, I just blogged about how it’s really that.

Here Are The Reasons Why Brazil Is About To Implode

8 Reasons Why Brazil Will Be The Hottest Market This Year

5-minute candles on $ES_F January 110 puts http://chart.ly76387

CNBC sucks so much because (fill in the blank)

“Buy Programs”

Here is my latest 23,000-word Gretchen Morgenstern takedown http://bt.ly64578

I just unlocked the Janitor badge for the W Hotel Union Square!  #foursquare

Goldman Sachs stole my bike

@SpeedieTrader OK, now I’m Short $FAS Puts and Long $FAZ Calls.  I think.

Timmy Boy is showing some real spunk today at Capitol Hill hearing part 146

blah blah Tiger Woods blah blah

Lithuania CDS spreads blown out to a 6 week record high, look out below.

Listening to Carry On My Wayward Son by Kansas on #Grooveshark

@SpeedieTrader took small losses $FAZ, $FAS, Quality of Life, etc.

Anyway, you get the idea.  Put that crap in your tradebot and see what it spits out at ya.