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Here's How Trump's Big Mouth Is Making Traders Big Bucks

Trading on sentiment doesn't always work but the initial drop probably indicates how many bots are trading on a Trump tweet.

21/02/2017 04:56 SAST
Andrew Harrer/ Bloomberg via Getty Images
The Twitter Inc. accounts of U.S. President Donald Trump, @POTUS and @realDoanldTrump.

Max Braun, a bot engineer at Google's secret lab, Google X, has created an open source trading bot that reacts exclusively to Trump tweets.

The Python coded bot searches Trump tweets through the Twitter Streaming APIs for mentions of companies, pulls the tweet in for sentiment analysis using Google's Cloud Natural Language API that is run on the Google Compute Engine instance. Wikidata Query Service figures out what their ticker symbol is, and assigns a positive or negative reaction, which is either buy now and sell at close or sell short now and buy to cover at close through the TradeKing API.

So how influential can 140 characters to 25 million people be?

According to Ted Merz at Bloomberg and this particular algorithm, very! Merz reported that market reaction has been so noticeable and rapid, he believes institutions have implemented internal algorithm trading based on Trump tweets.

So far using simulated funds and tracking the buy and sell recommendations Braun has been publishing from his bot @Trump2cash, the annualised return on investment is 59 percent.

The advantage of a bot over humans is reaction time, trade first. A small move may not seem like much but gearing an intraday trade can turn a few hundred thousands into millions in a matter of minutes.

Trump shoots from the hip and has no filter, he lashed out in a tweet at Toyota for manufacturing outside of America and threatened "big border tax" sending their stock 3 percent or $1.2 billion down, diving like a peregrine falcon. Since becoming president elect, Trump has addressed his praise or discontent towards several businesses. Lockheed Martin, a weapons-maker of the F-35 was mentioned in a tweet by Trump as a place to save billions. ten minutes into the following day's trading, Lockheed's shares were down 5 percent or $3.7 billion taking defence firms Northrop Grumman, General Dynamics and Raytheon down with them, with a combined loss of 4 percent or $4.5 billion.

The bot is not foolproof, Nordstrom removed Ivanka Trump's line from their stores, Donald Trump called them out. Nordstrom shares slipped briefly, but recovered within minutes to close that same day.

The bot is not foolproof, Nordstrom removed Ivanka Trump's line from their stores, Donald Trump called them out. Nordstrom shares slipped briefly, but recovered within minutes to close that same day, up 4.1 percent. Trading on sentiment doesn't always work but the initial drop probably indicates how many bots are trading on a Trump tweet and the recovery might be more sophisticated bots not commercially available or simply prudent investors taking advantage of undervalued stock.

KOR Group, a dedicated algorithm platform has noted that Trump referenced stock have usually bounced back after quickly hitting a maximum or minimum, this indicates a tweet from Trump might soon be ignored and brushed off as hot air. On average, companies that have received positive tweets have shown a 1 percent increase while the opposite have shown a 1 percent decrease.

Trump is a lot more predictable than the markets so trade with caution.