Trading volume and Google trends seem to be associated according to just published scientific research. It turns out that looking at Google searches for stock information correlates with higher trading volume of the same the stock the following week. The scientists note that their data does not tell us is the stock is going up or down but it does reliably predict higher trading volume. So, if trading volume and Google trends are linked can profits be far behind for the astute trader? To profit from high volume a trader will typically need quick and reliable technical analysis tools as he is not predicting whether a stock will go up or down but simply that trading will increase. Because high volume often correlates with price movement the trader who tunes into trading volume and Google trends may have found a brand new clue as to which stocks may be the most profitable to trade in the following week. But, where does all this come from?
In the scientific journal, Philosophical Transactions of the Royal Society, amidst scholarly treatises such as Parasitism and the evolutionary ecology of animal personality, is an article about, of all things, how Google Trends may predict which stocks will be more active next week. The article itself is entitled Complex dynamics of our economic life on different scales: insights from search engine query data. The scientists are interested in studying group behavior of all species, including humans. They view a person as the single smallest unit of human economic life. Looking at how each ?unit? submits search queries is possible because Google Trends allows one to look at search data going back as far as 2004. The scientists picked stocks in the S&P 500 and recorded, by week, the number of Google searches for the stock as well as price and trading volume. The researchers also note that there seem to be recurring patterns in this trading volume and Google trends relationship. But, how does the individual trader take advantage of this? Is this trying to outguess the market? Does how to become a successful stock trader now have more to do with consulting Google Trends and reading the most recent Philosophical Transactions of the Royal Society than reading the Wall Street Journal?
So far the scientists are not saying that they can tell if the trading volume and Google trends correlation predicts stock price movement. If they do then we can probably predict that the correlation will change and that the scientists will go back to work to and redefine the relationship. In the meantime it would seem that this information could direct the astute trader to the stocks most likely to become more active. However, watching which stocks are about to issue quarterly reports and which are about to issue dividends also tells one which stocks will likely become more active. Certainly when Toyota?s brake problems came to light trading Toyota did not require that the trader consult Google Trends to see if the volume Toyota stock being traded might go up. It would seem that the issue is going to be how to read technical analysis and trade efficiently as trading volume increases. In the meantime thanks to Tobias, et. al. for their efforts in ?sorting out complex dynamics of our economic life? to the extent that such efforts could well lead to profits in trading selected S&P stocks.
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