In his debut book on trading psychology, Inside the Investor s Brain, Rich-ard Peterson demonstrated how managing emotions helps top investors outperform. Now, in Trading on Sentiment, he takes you inside the science of crowd psychol-ogy and demonstrates that not only do price patterns exist, but the most predictable ones are rooted in our shared human nature. Peterson s team developed text analysis engines to mine data - topics, beliefs, and emotions - from social media. Based on that data, they put together a market-neutral social media-based hedge fund that beat the S&P 500 by more than twenty-four percent through the 2008 financial crisis. In this groundbreaking guide, he shows you how they did it and why it worked. Applying algorithms to so-cial media data opened up an unprecedented world of insight into the elusive patterns of investor sentiment driving repeating market moves. Inside, you gain a privi-leged look at the media content that moves investors, along with time-tested techniques to make the smart moves even when it doesn t feel right. This book digs underneath technicals and fundamentals to explain the primary mover of market prices - the global information flow and how investors react to it. It provides the expert guidance you need to develop a competitive edge, manage risk, and overcome our sometimes-flawed human nature. Learn how traders are using sentiment analysis and statistical tools to extract value from media data in order to: * Foresee important price moves using an understanding of how investors process news. * Make more profitable investment decisions by identifying when prices are trending, when trends are turning, and when sharp market moves are likely to reverse. * Use media sentiment to improve value and momentum investing returns. * Avoid the pitfalls of unique price patterns found in commodities, currencies, and during speculative bubbles Trading on Sentiment deepens your understanding of markets and supplies you with the tools and techniques to beat global markets whether they re going up, down, or sideways.
About the Author xi Preface xiii Acknowledgments xxiii PART ONE Foundations CHAPTER 1 Perception and the Brain 3 CHAPTER 2 Mind and Emotion 19 CHAPTER 3 Information Processing 30 CHAPTER 4 Sentimental Markets 47 CHAPTER 5 Finding Signal in the Noise 61 PART TWO Short-term Patterns CHAPTER 6 Information Impact 81 CHAPTER 7 Daily Reversals 99 CHAPTER 8 Weekly Deceptions 106 CHAPTER 9 The Only Thing to Fear 115 CHAPTER 10 Buy on the Rumor 127 PART THREE Long-term Patterns CHAPTER 11 Trends and Price Momentum 139 CHAPTER 12 Value Investing 151 CHAPTER 13 Anger and Mistrust 159 CHAPTER 14 The Psychology of Leadership 171 CHAPTER 15 Navigating Uncertainty 184 PART FOUR Complex Patterns and Unique Assets CHAPTER 16 Optionality 197 CHAPTER 17 Blowing Bubbles 205 CHAPTER 18 Timing Bubble Tops 218 CHAPTER 19 Commodity Sentiment Analysis 232 CHAPTER 20 Currency Characteristics 243 CHAPTER 21 Economic Indicators 254 CHAPTER 22 Sentiment Regimes 269 PART FIVE Managing the Mind CHAPTER 23 Mental Hygiene 283 Postscript 295 Appendix A Understanding the Thomson Reuters MarketPsych Indices 297 Appendix B Methods for Modeling Economic Activity 316 Glossary 323 Index 331
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