Trump tweets drive day trading but leave math, computer whizzes sidelined

Mon Jan 30, 2017 1:18pm EST
 
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By Gertrude Chavez-Dreyfuss and Anna Irrera

NEW YORK (Reuters) - Day traders love making bets on tweets from U.S. President Donald Trump, but some of the most prominent quantitative strategists from hedge funds and banks are not quite ready to make big, bold trades on his social media musings.

The president's active Twitter presence has lifted volatility in financial markets, which is good for day traders who capitalize on price fluctuations in highly liquid markets. Such traders, who have a short-term horizon, have struggled the last few years as market moves have become steadier and more predictable amid a low interest-rate environment.

"Trump's tweets are a good opportunity for a short-term discretionary trader," said Patrik Safvenblad, a partner at the $1.7 billion systematic macro hedge fund Harmonic Capital Partners in London. But he said it is not the right strategy for his firm since quantitative managers need data going back at least five to 10 years to establish a pattern.

Quants track patterns or trends in trading behavior and asset prices and create formulas to predict future market movements. These are entered into powerful computers that buy and sell automatically based on signals generated by algorithms.

For these gifted bunch of mathematicians, Trump's tweets are way too sporadic to serve as a meaningful trading strategy. "Trump's tweets are episodic," said Joseph Mezrich, head of equities quantitative strategies at Nomura in New York. "The way I look at data is that I have to look at what happens with sufficient sample. You have one or two events on Twitter ... and it doesn't provide much reliability."

First Quadrant, another asset manager that uses computer models to crunch data with about $22 billion in assets, does not look at Trump's tweets for investment opportunities.

"As a fundamental manager, we are really looking for just that: fundamental change," said Jeppe Ladekarl, a partner at First Quadrant in Pasadena, California.

Algorithmic trading makes up about 55 percent of U.S. equity trading volume, according to the latest research from Greenwich Associates. In the global currency market, that figure rises to 65-70 percent, according to research from Aite group.   Continued...

 
A trader works on the floor of the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S., January 19, 2017. REUTERS/Stephen Yang