Today, there is an endless array of data for traders to use. Newer to the scene are non-traditional data sources, better known as alternative data, which the trading community is tapping in order to gain a competitive edge.
Alternative data includes social media, satellite imagery, weather data, and more—really any set of data that is outside of traditional data sources like pricing data, reference data, volume data, or fundamental company information. For traders, alt data can be powerful sources of information, but this data is only useable for traders and financial organizations if there is a plan in place.
As alternative data becomes more mainstream, tips have emerged to help traders gain maximum potential. Here are a few to consider.
Determine Your Data Goals
Traditional sources of information remain critical to trading strategies, but alt data can provide a new layer of insights for a market edge. A recent study from Dataminr found that almost 80 percent of traders have started to incorporate alt data into their decision-making processes.
However, before integration, there's an important first step: evaluating data goals. Traders need to ask themselves if they want to tap into alt data to improve trading decisions or to gain real-time insight into developing events? Are you expecting this supplementary data to provide better situational awareness around news and events, or will it be best served to help with risk mitigation?
Some data sets might catch the eye, but without a clear use case that is tied to business objectives, taking on new data can slow down the ability to act quickly. Knowing the goal—the reason behind leveraging the data—can help traders pick the right data set.
Have an Integration Plan
Once traders understand data goals, the next step is to lay the foundation for integration.
Many organizations today are struggling with easily incorporating alternative data sets into current workflow structures. It's important to note that not all alt data sets are easily integrated. For example, a trader might find that a data set can only be accessed through a PDF, making downloading information difficult, or via an Excel sheet that isn't formatted consistently month to month.
These seemingly small annoyances can have an impact on a trader's ability to quickly and methodically work through information and make analyses, eventually grinding decision-making processes to a halt. In fact, 59 percent of our survey respondents cited a lack of workflow integration as a challenge.
Tools like Dataminr can help combat that challenge. Dataminr can integrate into a trader's workflow via popular delivery methods like email, web pop-ups, and API, allowing for seamless access to must-know information.
Critical information of any kind should never be kept in a silo. Beyond making it more difficult to access—especially when time matters—it can impact a trader's ability to gain insights.
With siloed data, traders can fall victim to making binary decisions based on only one part of the whole picture, not a complete set of information. That approach might have worked in the past, but today the best traders are using multiple data sets for multi-faceted analysis.
Extract the Information You Need
Do you have the right tools and processes in place to extract the information you need?
For instance, social media is an increasingly popular source of alt data, and Twitter is a goldmine of critical, real-time information. However, sifting through the millions of Tweets posted each day is an impossible task when looking for the specific, detailed, and actionable information traders need.
Ed Oliver, VP of Strategic Accounts at Dataminr, explains this challenge: "A single keyword search on Twitter, for example, would return not only an overwhelming volume of Tweets, but most likely Tweets with little relevancy. For example, a commodities trader searching for 'soy' could in theory be returned results for the crop as well as the Spanish word for 'I am.'"
With advances in technology, there are tools like Dataminr that can help you unearth relevant information that can influence your day-to-day trading. Using proprietary algorithms that integrate both machine learning and artificial intelligence (AI), Dataminr can filter through large quantities of content and alert traders to information that can impact their portfolio.
With the right plan in place, traders are able to tap into all of the advantages alternative data provides. Be sure to know your goal, determine integration, and find the signal in the noise.