How to be a Market Maker in Ideas on StockTwits

The market maker serves a very important role in the market.  The market maker provides liquidity to the market by posting a bid or ask and earns the spread for taking that risk and providing that role.

The manner in which the market maker adjusts his/her bid-ask spread as information presents itself is crucial to success.  Over the course of the day the market maker will get a ton of order flow and must discern which orders are contain no information (ie “noise trades”) and which trades contain relevant information (ie “informed trades”).  For example, if an informed trader hits the market maker’s offer, he/she knows to raise his bid/ask to adjust his inventory appropriately.  In general, the best market makers are the ones who can filter through the noise and obtain the best information (and most informed bid-ask spread) at the lowest cost.

On StockTwits we are all market makers in ideas.  The key is to separate the informed trades from the noise and get a nice stream of informed idea flow on your screen.

How to be a Market Maker in Ideas on StockTwits

1. Identify and Follow a Group of Informed Traders

This shouldn’t be difficult.  There is a ton of talent and informed traders on StockTwits.  The hard part is matching them up to your time-frame, risk tolerance, and trading frequency.  If you are someone who doesn’t have the time to daytrade you may not want to include someone like @TodayTrader, @WeeklyTA, or @AnneMarie2006 in your group of informed traders.  This is not because they aren’t awesome traders (they are!), but they often hold positions for a short period of time and sometimes go both long and short the same position in the course of a day.  Instead, you may be better suited following someone like @ToddSullivan who usually holds a position for a bit longer than a day.  Identify what type of trading style you are comfortable with and find good, informed traders that match up with that style.

The best way to filter out the noise is to physically do it and the great thing about StockTwits is that we have the features that allow you to follow a stream of just your friends:

  • To add someone to your friends stream, all you have to do is follow them on Twitter.
  • To access the stream on the StockTwits homepage, log in, then open up the “Select a Stream” drop down menu (which is located under the tweet box and above “The Human Ticker” banner) and select “Friends”.
  • To access the stream on Tweetdeck, just click on the StockTwits “$” icon on the upper left-hand corner and select “Friends”, and the stream should pop up.
  • This feature (amongst many others) will also be available in StockTwits Desktop.

2.  Evaluate and Value the Ideas

Once you have a nice stream of ideas coming from informed traders then you want to evaluate the information contained in the ideas.  This means checking charts, fundamentals, the lunar cycles, or whatever it is you use to evaluate an idea.  More importantly, you need to value the information in pure dollar terms.  If @upsidetrader tweets an entry on $ACAD at $5.82 and now the stock is at $6.00, you need to see if there is enough value left in that entry information.  This is not an easy task, and can vary depending on the type of trader it comes from and the type of stock/trade it is.   It is something that you get better with over time.

3. Act Accordingly and Monitor

After you have identified, evaluated, and valued an actionable idea, the next step is to take action.  When you take action, make sure you include all the information given within the idea.  This includes stops and targets.  You also must follow the idea, and the source of the idea closely.  Many traders are constantly updating their stops/targets, as well as adding to and reducing positions in real time.  You must understand that an entry is only part of the information from an informed trader, and there is a ton of value in the dynamic evolution of an idea.  Please don’t underestimate this.  Once you have committed to an idea, stay with it and extract as much value as you can from the information that is available.

While this may seem somewhat straightforward to some, we hope it is an interesting way to look at how to use the StockTwits Human Ticker to synthesize ideas and information.  It is our belief that if you think like a well-disciplined market maker in ideas, there is a ton of value in StockTwits to be unlocked.

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