The Dark Index Trading Strategy.

Creating a Strategy on the S&P500 Using the Dark Index in Python.

Sentiment Analysis is a vast and promising field in data analytics and trading. It is a rapidly rising type of analysis that uses the current pulse and market feeling to detect what participants intend to do or what positions they are holding.

Imagine you are planning to go see a movie and you want to anticipate whether this movie will be good or not, therefore, you ask many of your friends — whom have already seen the movie — about their opinions. Assuming 75% said the movie was good, you will have a certain confidence level that you will like it because the sentiment around this movie was mostly good (ignoring tastes and preferences). The same analogy can be applied to the financial markets through many ways either quantitative or qualitative.

Sometimes, indicators will be classified as more than one type, meaning a technical indicator can also be a sentiment indicator (e.g. the On-Balance Volume). And the way we analyze can also be technical (e.g. drawing support and resistance lines) or quantitative (e.g. mean-reversion).

This article will discuss an index called the Dark Index and how is it used to predict the direction of the S&P500. For this study, we will use the signal quality as a judge.