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Investment strategies using sentiment analysis on social networks

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Social networks, beyond their daily use, have become important tools to decipher the tangled social sentiment towards any topic. While knowing what users feel and think is valuable, both for marketing agencies and investors.

Precisely, social network sentiment analysis can be defined as the extraction and analysis of opinions, emotions and feelings expressed on social networks such as Twitter, Facebook, Reddit, and others.

The goal of this task is to understand the public’s attitudes and feelings towards specific topics such as assets, companies, products, events, etc. That is the reason why technologies related to the analysis of large amounts of data are highly in demand.

However, focusing specifically on the area of ​​investment, this type of analysis allows investors to detect trends and changes in sentiment around an asset before they are reflected in prices. Do you understand why they are popular in the cryptocurrency sector?

Furthermore, this type of analysis is an excellent complement to traditional analyses. By providing real-time data, it offers analysts a more objective perspective on the situation of a given asset.

For example, just being able to monitor public reactions to news, announcements and events around an asset could give you a clearer perspective on how its value will develop in the future.

Investment strategies that use sentiment analysis on social networks

When talking about investment strategies that take advantage of the potential of social media sentiment analysis, we can refer to the following:

Strategies to invest using social sentiment
  1. First, use these analyzes as a complement to other types of analysis. For example, if in the analysis of a crypto asset you complement a previous analysis on chain or technical. In this way, one analysis can complement the conclusions of the other and thus smarter decisions can be made.
  2. Speaking specifically about investing, this type of analysis is used to take short positions when growing negative sentiment is detected, for example. Or also to take long positions when positive sentiment is detected around a certain stock, product or brand. Although, as we said, complementation between analyzes is ideal.
  3. You can also invest based on the general economic trends of a country or region and, in the same way, analyzing the sentiment in networks towards consumer spending and purchasing power. This way you can predict your decisions when investing in funds or related stocks.
  4. Let’s mention the monitoring of authority figures such as influencers or references. In the case of cryptocurrencies, it is extremely useful to evaluate the sentiment of analysts and media due to the great weight they have on the value of certain assets, especially low capitalization.
  5. In general, we can mention sentiment analysis used to anticipate movements in the prices of an asset.

As you can see, the strategy possibilities are wide and, without a doubt, each investor builds their own according to their objectives and tools at hand.

Sentiment analysis tools on social networks

First of all, we will highlight that there are several types of tools for analyzing social network sentiment. With the rise of Artificial Intelligence, these types of tools are increasingly diverse and accessible.

Besides, more advanced users often build their own tools tailored to their needs.

Below we will mention a list of platforms accessible to any user and what will allow you to evaluate the sentiment on social networks:

  • AltIndex, known as one of the best alternative data analysis platforms for beginners. It offers analysis of various data from social networks and many other platforms. It offers scores, alerts and a range of basic functionalities.
  • Sherlock Analyticswhich belongs to the popular money manager Fidelity, and analyzes various platforms, including Twitter data, 24 hours a day with which to extract sentiment towards listed companies (if access is denied, try accessing with a VPN).
  • StockTwitsa social network specialized in investments that detects conversations and social sentiment from tweets about assets, in order to determine their positive, negative or neutral sentiment.
  • InfoTrie is an alternative data provider offering online sentiment analysis, financial news, e-commerce reviews, and more. It has natural language processing.
  • RavenPack is a Big Data analysis tool that, among many functions, can analyze data from social networks, news, transcripts, etc. and in this way generate sentiment scores.

We end this article by saying that investors who want to enter this world should explore Big data tools and technologies in general. Well, as we mentioned, there is a broad emergence of this type of tools.

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