Sentiment Trading Strategy Examples


Simple Strategy

First, you can build a very basic strategy that simply buys when sentiment is superb, holds, and sells once sentiment gets into negatives. To mimic this, You can write a simple strategy, which just do this. If the cryptocurrency sentiment analysis signal is at 100, the strongest possible positive, then a buy is initiated, using 10% of the portfolio's available cash, and a stop-loss of 0.5% is set. This means that we would be invested in up to 10 assets at any one time. We could try to make the strategy a bit smarter by dynamically adjusting investment size according to available investments, but we'll keep it basic for now. After buying, the strategy holds the asset until sentiment hits -1 or lower, and then a sell is initiated.

Sentiment Threshold

Example 1: At the market open each day, assets with a sentiment score above the positive threshold are entered long and assets with a sentiment score below the negative threshold are entered short. Equal weight is applied to the long and short legs. These positions are assumed to be liquidated at the day's market close.

Exponential Moving Average Sentiment

Example 2: Using sentiment data from 9:10 EST which looks at an exponentially weighted sentiment aggregation over the last 24 hours. Each stock is separated into its respective quintile based on its sentiment index in relation to the universe. A long-short portfolio is constructed in a similar fashion as previously with long positions in the top quintile assets and short positions in the bottom quintile assets. Deutsche Bank's Quantitative Research Team recently released a paper about strategies that solely use SMA data which includes a long-term strategy.

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