Technical talk in bitcoin and equity

Abstract

We investigate whether investors rely more on technical trading language to rationalise price movements in the absence of substantive information. Compared to equity markets, cryptocurrency markets are characterised by high volatility, often occurring without clear explanation from new information. We apply a machine-learning-based vocabulary of technical trading terms to comments from cryptocurrency- and equity-related subreddits on Reddit.com and analyse how investors use technical talk in different market conditions. We find a U-shaped relationship between technical talk and Bitcoin returns, with higher usage during extreme price movements, while technical talk on equity subreddits is concentrated around median market returns. Technical talk increases in cryptocurrency markets when news is scarce but rises in equity markets alongside greater news availability. Our results suggest that technical talk provides an important communication channel for social media users to describe price variation when information is scarce.