When Not to Trade
The default action in a market with real costs is no action. A checklist of the conditions under which the correct response to an interesting number is nothing.
Every market is an invitation. Most of them should be declined, and the discipline of declining is worth more than any particular insight.
When the cost exceeds the edge
The first and most common case. Your view is worth three cents and the round trip costs four. There is no trade, regardless of how good the reasoning was. How fees eat an edge.
When the market is thin
A wide spread, a shallow book, no recent trades. Whatever you think the price should be, you cannot express it at a reasonable cost, and the price you are disagreeing with is not really a forecast. Thin market warning signs.
When you have not read the resolution criteria
If you do not know the source, the threshold direction, the timestamp and the tie rule, you do not know what you are trading. This takes a minute to fix and is not optional. Resolution risk.
When the horizon is long and the edge is small
A three-cent edge settling in eighteen months is a poor return on committed capital before anything else is counted. Capital lockup.
When your view came from the price
If you looked at the market and then formed an opinion, you have read a number. There is nothing to trade against. Where crowd wisdom runs out.
When you want the outcome
Preference contaminates forecast. If you notice you would be pleased regardless of the money, be more sceptical, not less. Behavioural traps.
When you are recovering
After a loss, after a win, after anything that changed how you feel about size. Both directions are dangerous and the second one is more so. Variance and drawdown.
When the gap looks too good
A large cross-venue difference is, in descending order of likelihood: stale, thin, mismatched, or a genuine difference between two different questions. Actual reachable mispricing is last on that list. The correct first response is to check, not to act. How to read a gap table.
When you cannot size properly
If the book supports forty contracts and your reasoning only justifies the effort at four hundred, the market has answered for you. Depth and slippage.
When you already hold the exposure
Another position on the same underlying fact is not diversification; it is the same bet again. Correlated positions.
When you are not sure why the other side is there
Someone is taking the opposite side. If you cannot articulate a plausible reason why a reasonable person would, you may be missing something. Often the reason is benign — hedging, rebalancing, a different horizon. Sometimes it is that they know more.
What to do instead
Read. Record a forecast without a position. Compare against the market. Score it later. This costs nothing, builds the only skill that compounds, and leaves you free to act on the rare occasions when something genuinely clears every bar above.
The data on this site is built for that use first: cross-market gaps, top movers, and the methodology explaining exactly how each number is produced and what it is not.
Where to go next
Back to the first-week checklist if you are starting out, or the limits of any measured edge if you have been reading these in order.
Educational content only. Nothing here is financial advice, a solicitation, or an offer to trade. Prediction markets can move against you and a position can lose its entire value. Where this guide describes a difference between venues it describes a theoretical cross-market edge in observed prices, which is not a profit: fees, spreads, capital lockup, transfer time and differing settlement rules all come out of it first.
Keep reading
Risk and Costs · 3 min readCorrelated Positions That Look DiversifiedTwenty positions on six underlying events is six bets. Spotting hidden correlation in an event market portfolio, where it hides in plain sight.
Risk and Costs · 3 min readVariance, Drawdown, and What a Losing Run Feels LikeWith a small genuine edge, long losing stretches are normal and indistinguishable from having no edge at all. Planning for that in advance is the whole game.
Risk and Costs · 3 min readThe Behavioural Traps Specific to Event MarketsBinary payouts, visible probabilities and questions you have opinions about combine into a specific set of psychological failure modes.
Forecasting and Calibration · 3 min readUpdating on News Without OverreactingNew information should move your forecast by an amount proportional to how surprising it is. Most people move too far on noise and not far enough on signal.