What separates traders who generate steady returns from those treading water or facing losses typically hinges on methodology rather than forecasting ability alone. This guide outlines the core disciplines that seasoned market participants employ during their regular trading activity.
Before Entering Any Position
- Articulate your edge: What insight gives you an advantage over the broader market? Commit this reasoning to a single sentence prior to executing any trade.
- Check the spread: Does the gap between bid and ask prices remain sufficiently tight that your informational advantage justifies the transaction expense?
- Assess liquidity: Would you be able to unwind this position at a favourable price should circumstances require it? Examine the depth of available orders.
- Set your probability independently: Develop your own forecast before consulting market quotes to prevent anchoring to prevailing sentiment.
- Calculate position size: Apply the half-Kelly criterion. Never allocate more than 5% of total capital to a single position, regardless of confidence level.
During Position Management
- Update on new information: Following significant events (speeches, economic data, announcements), reassess your probability estimate and determine whether to increase, maintain, or reduce exposure.
- Don't check obsessively: Minute-to-minute price swings represent statistical noise. Monitor positions once daily for markets with longer timeframes.
- Pre-define your exit criteria: At what price level will you close the position if your thesis proves incorrect? Establish this threshold beforehand to sidestep emotion-driven choices.
After Each Market Resolves
- Record everything: Document the date, market identifier, your stated probability, entry price observed in the market, final result, and realised gain or loss.
- Score your calibration: Did your predictions assigned 70% probability actually occur approximately 70% of the time?
- Categorize by market type: Do you demonstrate stronger performance in geopolitical versus technology versus athletic prediction markets?
- Review your losers honestly: Did this loss stem from flawed reasoning or simply from sound analysis meeting an unfavourable outcome?
Weekly Review Routine
- Reconcile all positions and P&L
- Calculate rolling 30-day and 90-day Brier scores
- Review upcoming calendar events (Fed meetings, elections, major data releases)
- Identify any systematic biases in your recent trading
- Rebalance portfolio allocation if needed
FAQ
- How often should I review my prediction market performance?
- A weekly cadence works best for the majority of traders. Checking daily tends to encourage excessive trading; checking only monthly allows problems to compound before correction.
- What software should I use to track prediction market trades?
- PolyGram's integrated tracking tools provide a solid foundation. For more sophisticated performance measurement, export your transaction history as CSV and process it through Excel/Google Sheets or Python scripts.
- How many markets should I research before entering each week?
- Depth of analysis matters far more than breadth. Conducting rigorous research on 3-5 carefully selected markets typically yields superior returns compared to superficial examination of dozens.