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How Twitter Is Being Mined to Predict Market-Moving Events

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When big data is wielded the right way, the best source for breaking news is 140 characters long.

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"The thing that is really unusual about Twitter, the phenomenon of micro blogging: All of it is completely open, and it has fostered a use case of people describing the world around them, seeing things in real time and reacting and publishing information as quick as possible."

And they're doing it on a colossal scale. When Bailey founded Dataminr in 2009, Twitter had close to 1 billion tweets total. Now there are a billion tweets published every two days. There was no certainty Twitter would mushroom into what its become. He admits it was a risk, but a risk that has paid off.

"Twitter isn't just the biggest data set. It's the data set," Bailey says.

For anyone paying attention, big data has become hot news lately, and for very good reasons according to data forecasting golden boy Nate Silver. In his New York Times best selling book The Signal and the Noise, he writes on human beings' natural attraction to look for signs in large sets of data. "Our minds are quick. We are wired to detect patterns and respond to opportunities without much hesitation."

But apparently not quick enough. Silver points out that no matter how big Big Data gets, we will always be hindered by our physiological disadvantage; 2.5 quintillion bytes of data are being generated every day, while the human brain can store roughly 3 terabytes over a lifetime. That's peanuts in comparison.

An algorithm walks into a bar...

Wherever there are eyes and ears, there is data being created on Twitter. Lots of it at that. And as with all large data sets, patterns will inevitably emerge.

Dataminr has over 20 proprietary algorithms that scan Twitter's Firehose in search of relevant hotspots of activity. Technically speaking, these algorithms seek out 'abnormal activity' utilizing a broad spectrum of approaches. They pinpoint activity from, say, a trusted source that has delivered information on influential topic in the past. Or, a blossom of activity from handles that have never been important for any reason in time, but are all from the same location, tweeting about a real time event.

In layman's terms, Dataminr is employing a very complex, very intelligent system of filters to select information it sees as relevant to its clients' needs. It then delivers that information very quickly.

But quick can often mean low quality. Twitter has no editors. It has no censors. Anyone has the ability to propagate any type of information, be it true, false, or utter nonsense.

"There are a number of answers to the trustworthy question. The key to dealing with Twitter is knowing that you can't really take one approach. Verification comes with the general expertise of those that are discussing the signal, or the geo proximity of those reporting the signal, and how normal that would be. And then there is the whole range in between," says Bailey.

Truth and news, however, have never been solely synonymous, and rumors surely move markets too.

Larry Rafsky, the founder and CEO of Acquire Media, certainly believes this. His NewsEdge product line is a leading premium real time news delivery system used throughout the financial world, and he is adamant that people must realize "Twitter is the new newsfeed!"

NewsEdge (which incorporates the aforementioned PeopleBroswr's Twitter analytics platform) offers a product slightly different from Dataminr's. Two integrated NewsEdge services, People are Talking and VORTEX (Velocity Of ReTweet EXpansion), combine to search Twitter for relevant mentions on public companies (or their brands) only, and measure the speed at which these tweets are being retweeted.

"We don't care about the truth," he tells Minyanville "We care about where the equity price is going."

Twitter: @brokawbrokaw
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
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