Tips for Using Google Trends Data to Predict Market Movement

Google Trends is a tool that can be used to compare two search terms according to volume. This tool is useful in analyzing the stock market itself because it can be a good indicator of the global sentiment surrounding the stock market.

Measure Bullish or Bearish Sentiment

Most new investors are attracted to the market when they hear about stock gains on the news and a rising market. Google search results tend to reflect this. Analyzing search phrases like “what stocks to buy,” “top stocks to buy,” and “hot stocks,” can paint a broad picture of whether investors are interested in buying or selling. Large spikes in the chart indicate historical rallies where more people became interested in investing in the market. Dips are from historical sell-offs like the one in 2008. These trending graphs can paint a broad picture that you can’t see anywhere else. When investors are worried that a bear market is coming and they should sell, search volume for terms like “how to sell stocks,” “sell stocks,” and “how to short sell” see a sharp increase. You can see a huge spike in volume for the search term “sell stocks” during the 2008 financial collapse. Oddly enough, search volume for selling stocks has reached the same popularity as in 2008.

Predicting Stock Performance

This same sort of analysis can be done for individual stocks to determine how the news cycle affects the stock price. This analysis can be handy for online trading since technical analysis can provide a good look at historical data. Looking at search volume for a company’s name and then “buy” or “sell” will help you form a better idea of interest in that company’s stock over time. The same can be done for cryptocurrency, though those are a tad more fragile than stocks and bonds.

Timing the Market with Trends

Other keywords to keep a close watch on are “debt” and “stocks,” as these are valuable indicators of the general sentiment surrounding the market. Analysis has shown that a decrease in search volume preceded price increases for the S&P 500. Some technical analysis traders incorporate monthly Google Trends data using special algorithms to determine the general sentiment of their investments. Since search volume seems to be a pretty accurate predictor of a change in prices, it can be a handy way to navigate a volatile stock market. The study’s back testing revealed that using monthly Google Trends data can help identify weak stock market periods.

Google Trends data won’t replace any analysis you’d do using a service like Finviz, but it can be a great supplement to help you detect sentiment before prices start changing one way or the other. If you haven’t used it in researching new stocks to invest, give it a try and see how it works for you.

One of the hardest parts about day and swing trading is knowing when the market will rise and fall. Search terms can help give us some insight into predicting those periods so you can profit in both bullish and bearish markets.