Traders on Wall Street are turning tech-savvy by using computers with powerful software that analyzes news reports, company statements and editorials to judge the market sentiment and then trade accordingly without human intervention. These smart computers look for certain words, how a sentence is framed and even emoticons to get an intuitive feel of the subject and in effect, the mood of the market. All this means that traders with these intelligent systems in place get early access to ‘interpreted information’, something that is extremely valuable for them and gives them a leg up over their competitors.

New York Times reports:

Tech-savvy traders have been scraping data out of new reports, press releases and corporate Web sites for years. But new, linguistics-based software goes well beyond that. News agencies like Bloomberg, Dow Jones and Thomson Reuters have adopted the idea, offering services that supposedly help their Wall Street customers sift through news automatically.

The software typically identifies the subject of a story and then examines the actual words. The programs are written to recognize the meaning of words and phrases in context, like distinguishing between “terribly,” “good” and “terribly good.” Lexalytics, a text analysis company in Amherst, Mass., that works with Thomson Reuters, says it has developed algorithms that make sense out of Twitter messages. That includes emoticons like the happy-face :) and the not-so-happy :\.

NY Times: “Wall St. Computers Read the News, and Trade on It”

Image by Mathew Knott