Fundamental and Technical trading indicators have long been used as a proxy for market sentiment.
But by definition, these indicators have always lagged the movements they’ve been used to forecast.
With the advent of “Big Data”, social data too has joined the ranks, e.g. Twitter, Facebook, LinkedIn, with various attempts being made to harness any potentially predictive patterns through “opinion mining“.
However, Real-Time Sentiment Analysis continues to be an elusive, ever-evolving challenge.
The Challenge: Measuring in real-time, how market participants are presently orientated.
The Solution: DARWIN DWC? ..continue reading for the answer.
If you missed our first post introducing DARWIN $DWC, you may read it here.
DWC – An Index & Tradable Security bundled into one.
DWC is Darwinex Labs’ first attempt at openly addressing the problem of lagged sentiment.
By leveraging community exposure in a manner that protects individual trader IP, DWC shows how the Darwinex trader collective is inclined in real-time.
As a Real-Time Sentiment Indicator, DWC also exhibits the following features:
- 24/5 LIQUIDITY during market hours.
- Tradable 24/5 -> the ability to buy into sentiment directly (i.e. buy DWC) eliminates the need for considering purchases of index-linked Exchange Traded Funds (ETFs) or Notes (ETNs) as is the case with say the VIX Implied Volatility Index.
- Cyclical / Mean Reverting -> trading a reasonably predictable, well-defined, mean-reverting price range is high on every trader/investor’s wishlist.
- HIGH CAPACITY – With a current maximum investment capacity of 1.2 to 1.5 Billion USD, there is plenty of retail volume this asset can take to market with little to no market impact -> community IP remains protected at all times, trader/investor interests remain aligned, no conflict of interest.
- DWC replicates the opposite of the trader collective’s behaviour – A significant majority of traders routinely demonstrate Loss Aversion (keep losing trades open in confidence that odds are favourable, but close winning trades too soon). The pitfalls of loss aversion make themselves particularly well known during deep market movements. For more details on this, please refer to our first post on DWC.
- As DWC replicates the opposite of trader behaviour, it rises during such times.
DWC can therefore be used by Darwinex traders and investors as:
1) A “hedge” during turbulent, deep market movements.
2) A reasonably stable, range-bound asset to trade on its own otherwise.
- This post highlighted that the DWC moves with trader sentiment in real-time, realizing progress in “human cognition” led asset management.
- Traders stand to benefit from the mean-reverting nature of the DWC offering range-trading and hedging opportunities.
- DWC is a sentiment indicator and directly tradable asset.
What happens next?
In future posts, we will commence publishing several streams of quantitative research (e.g. ARIMA/GARCH modeling, deep learning experiments, etc) that we’ve been conducting on the DWC dataset.
Additional Resource: Measuring Investments’ Risk: Value at Risk (VIDEO)
* please activate CC mode to view subtitles.
Do you have what it takes? – Join the Darwinex Trader Movement!