I see a good deal of both confusion and skepticism out there regarding trading blogs and platforms such as StockTwits.  These are relatively new mediums, and should be treated as such, I don’t believe both the contributors and the readers quite understand the value and the distraction that these new tools represent.

StockTwits, a micro blogging / messaging platform has been around for less that two years in its current form, it continues to iterate and transform, providing users different tools to both contribute and listen.  StockTwits may be in only the 3rd or 4th inning in terms of its ultimate set of functionality.  How can we possibly expect to have a full understanding of its value after such a short period of time?

Longer form blogs have been around awhile, and grow from the newspaper or magazine column style of writing.  But the ability for nearly anyone to start an investment or econ blog easily is new, there has been an explosion these past few years of excellent content by completely unknown people.

There are really two different conversations to be had here.  The first, how should investors and traders use StockTwits and blogs in their trading.  The second, how should people contribute to these platforms.  The latter is a far more difficult question to tackle, one that I will leave for another time, there are many more variables to consider there.

The main knocks against platforms such as StockTwits are as follows, I will cover them first before moving on to the real value.

#1 – StockTwits is just noise, I get no value from looking at the all stream, it’s just a distraction.

If you’re focusing on the all stream, that’s your first problem.  Do you focus on the Twitter all stream?  No, I didn’t think so.  The philosophical idea behind micro blogging platforms is that anyone can say anything, and if they allow, everyone can see it.  Your voice is given the same opportunity to be seen as anyone else, it is a complete meritocracy.  Stop focusing on the all stream and start finding specific people to follow, more on this later.  As StockTwits grows, the all stream will continue to grow more and more noisy.  Noise and spam are two different things though, noise should be defined as anything which doesn’t pertain to information which helps you, spam is information that doesn’t give anyone value.

#2 – The people on StockTwits are all just college kids or retired farts who don’t know anything, listening to them will only hurt you.

Let’s say, just to entertain this ridiculous claim for a minute, that this is the case.  Well then use it as a contrarian indicator and trade against the herd.  If as you say, they don’t know anything and will make all of the classic herd mistakes, that’s valuable information.  Frankly this is a stupid claim given that there are professional money managers and traders on StockTwits every day sharing their trades and ideas.  Yes, there is a population of green traders and investors sharing their ideas, and if that’s not what you want to focus on, don’t chose to follow them, it’s really that simple.  I would caution you though not to dismiss this group of amateur traders, I have seen some excellent ideas and information flow from these people, some of which I have directly acted on.  Sometimes, just having more eyes on the market is valuable, no one can see ever important movement in the market.

#3 – I can’t see anyone’s performance record and qualifications, so why should I listen to them.

True, you can’t find a performance record of people who contribute their thoughts to StockTwits, or their academic/professional credentials.  But why should this matter?  You should be judging these people on the quality of information they are providing you, not their track record or diploma.  I’ll listen to a college kid trading on his time between classes just as well as a hedge fund manager as long as the information he’s providing is actionable and quality.  I don’t care about how much money they are making in the market, in fact I could care less if they were losing money, just as long as their info helps me with my own trading.  As the saying goes, those who can’t do, teach.  Well maybe there are a ton of people out there who understand market dynamics and what trades should be made, give great ideas, but are not successful at trading themselves given their personal disposition or economic situation.  Stop worrying about who the people are and start focusing on the information they are giving you.

#4 – It’s all just day traders on there using technical analysis, I’m a serious investor, day trading is for small timers and technical analysis is a bunch of voodoo.

First, on the issue of technical analysis, go read this post by John Lee before you wipe it aside.  Some of the greatest traders of all time use technical analysis.  Second, I know a ton of guys who make far more money than you day trading, they just don’t do all of your fundamental masturbation, and end up at the same place, with a phat bank account.  No one trading style is any better than another, trading is all about banking coin.  If you’re not a day trader, fine, neither am I, go find the guys who are swing traders, fundamental traders, global macro traders, they’re all there.

#5 – This is just another stupid Yahoo message board, it’s all just rumors and junk.

I won’t even dignify this comment with a response, you obviously haven’t taken the time to understand the platform, take another look.

So how should you use StockTwits?  First, understand what type of trader / investor you are.  If you are an equities day trader, go to the equities stream and watch for people who day trade, judge them on their trades, look at their history of information, take a look at how many followers they have.  It’s no surprise that quality people have a lot of followers.  If you are a forex trader, go to the forex stream.  If you trade a longer time frame on many different assets, look for people who are giving more detailed ideas regarding the fundamentals of the assets they are trading.  Ask the stream who to follow for your trading style, you will instantly get a response giving you the best of the best.  Go to the suggested users stream, they are suggested for a reason, StockTwits watches the community with intimate detail to screen for those who give only the best information.  StockTwits is all about discovery, discovery of ideas and people, use it as such, don’t just watch the all stream.

So you’ve found the people who trade a similar style as you and trust them to give you quality information, what next.  Here’s my advice, use the information in your stream as both an idea generation machine and another set of eyes on the market.  Should you be blindly following people into trades, hell no.  Just as Jesse Livermore said, the first rule of being a stock operator is to never take a tip.  Once you enter a trade that isn’t your own you are at the mercy of that person to get you out, which is the most dangerous thing I can think of.  When you see someone enter a trade, take a look at it, do your own research, use your own system, and then decide whether it is right for you.  Ideas are valuable, great ideas are worth a lot of money, which is why certain traders have paid products.  They have proven, through their performance and following that their information is valuable, and good for them, just as other forms of content should be paid for if there is enough demand, so should investment ideas on StockTwits.  Hey, we are traders, we should believe in the free market, supply and demand.

Personally, I don’t care if someone just posts trades, or only posts ideas without posting their trades, as long as I can use their messages as actionable information, they are useful to me.  As a technical analyst, the same goes with charts.  I don’t care if you post your entry and exit on the chart, just as long as your chart gives me insight into what is going on in that asset, maybe something I didn’t see.  I have used Chart.ly extensively to source ideas, and follow a group of traders who traffic in a similar style and similar names as I.  They have been invaluable to my trading, giving me another set of eyes, and sometimes making me see the chart in a way I may not have on my own, a valuable asset.

As for blogs, use them the same way.  Do not blindly follow a blogger’s view or his portfolio.  I’ll use myself as a perfect example.  I post an accurate representation of my clients’ momentum portfolio on a real time basis for all to see.  You should be using it to see what I’m invested in, how I’m thinking, and what I’m focused on.  If you want someone to build you an investment portfolio or trade for you, give your money to a professional money manager.

As I said earlier, StockTwits and the blogosphere will continue to morph and add features.  This space is so new, there is so much yet to be learned regarding its use.  But I know one thing above all else, giving everyone the ability to share their ideas on the same platform in a meritocratic way is insanely good and valuable.