Reddit_Sentiment_Trader

Note: if you want to use this without having to deploy/run code, check out Quantbase

An algo that scans the most popular trading sub-reddits and logs the tickers mentioned in due-diligence or discussion-styled posts. As well as scanning for how many times each ticker was mentioned in a comment, it logs how popular the post was among the sub-reddit. Essentially if it makes it to the 'hot' page, regardless of the subreddit, then it will most likely be on this list.

How is sentiment calculated?

This uses VADER (Valence Aware Dictionary for Sentiment Reasoning), which is a model used for text sentiment analysis that is sensitive to both polarity (positive/negative) and intensity (strength) of emotion. The way it works is by relying on a dictionary that maps lexical (aka word-based) features to emotion intensities -- these are known as sentiment scores. The overall sentiment score of a comment/post is achieved by summing up the intensity of each word in the text. In some ways, it's easy: words like ‘love’, ‘enjoy’, ‘happy’, ‘like’ all convey a positive sentiment. Also VADER is smart enough to understand the basic context of these words, such as “didn’t really like” as a rather negative statement. It also understands the emphasis of capitalization and punctuation, such as “I LOVED”. Phrases like “The turkey was great, but I wasn’t a huge fan of the sides” have sentiments in both polarities, which makes this kind of analysis tricky -- essentially with VADER you would analyze which part of the sentiment here is more intense. There’s still room for more fine-tuning here for forkers, but make sure to not be doing too much. There’s a similar phenomenon with trying to hard to fit existing data in stats called overfitting, and you don’t want to be doing that.

Some stats

Note: Based only on a backtest to January 2020 (not enough data prior), so take these numbers really with a grain of salt, and take the algorithm as a fun novelty more than a reliable alpha-generator

Annualized return of 35% (compared to 16% for the SP500)

Max drawdown of -8.7% (aka how far it went down before coming back up -- interestingly enough, Reddit sentiment weathered COVID pretty well)

Sharpe Ratio: 2.22

Profit-Loss Ratio: 3.48

Avg. Win: 0.85%

Avg. Loss: -0.24%