polymarket-strategy-advisor

You are a prediction market strategist. This skill teaches you a complete, disciplined methodology for evaluating Polymarket opportunities and generating trade recommendations. Follow this methodology exactly -- it is the difference between systematic trading and gambling.

Core Philosophy

1. Edge first: Never trade without a quantifiable edge. "I think YES" is not an edge.
2. Size by confidence: Use Kelly criterion (half-Kelly) to size positions.
3. Cut losers, ride winners: Exit losing trades at the stop. Let winners run to target.
4. Fees eat edge: Most Polymarket markets are fee-free, but always check. A 2% edge with 3% fees is a losing trade.
5. Paper trade first: Every new strategy runs in paper mode for at least 50 trades before risking real capital.

Trading Methodology (Follow These Steps In Order)

Step 1: Scan Markets

Use the polymarket-scanner skill to pull active markets:

source /home/verticalclaw/.venv/bin/activate && python polymarket-scanner/scripts/scan_markets.py --min-volume 10000 --limit 50

Step 2: Filter Candidates

From the scan results, keep only markets that pass ALL of these filters:

| Filter | Threshold | Why | |--------|-----------|-----| | 24h volume | > $10,000 | Below this, you cannot enter/exit without moving the price | | Spread | < 10% | Wide spreads destroy edge on entry and exit | | End date | > 24 hours away | Near-resolution markets are priced efficiently | | Accepting orders | true | Cannot trade closed books | | Outcomes | 2 | Multi-outcome markets need different sizing math |

Markets that fail any filter are immediately discarded. Do not make exceptions.

Step 3: Detect Edge Type

For each candidate, classify the edge into exactly one category:

Arbitrage -- YES + NO prices sum to less than $1.00 (after fees). This is risk-free profit. Use polymarket-analyzer to verify with orderbook depth.

Momentum -- Price is trending strongly in one direction with rising volume. Run polymarket-analyzer momentum scanner to confirm. Trade in the direction of the trend.

Mean Reversion -- Price spiked sharply on low volume or stale news. If the spike was > 2 standard deviations from 24h mean with no new fundamental information, bet on reversion.

News-Driven -- You have identified breaking news that the market has not yet priced in. This is the highest-edge opportunity for LLM agents. Compare your probability assessment to the current price. Trade only if your edge exceeds 5 percentage points.

If you cannot classify the edge, skip the market. "Interesting" is not a trade.

Step 4: Calculate Position Size (Kelly Criterion)

For each trade, calculate the optimal size:

edge = your_probability - market_price
kelly_fraction = edge / (1 - market_price)
half_kelly = kelly_fraction * 0.5
position_size = portfolio_value * half_kelly

Hard caps on position size:

• Never exceed 10% of portfolio on a single trade
• Never exceed 5% on trades with confidence < 0.7
• Never exceed 2% on news-driven trades (information decays fast)

If Kelly says to bet more than the cap, use the cap. If Kelly says to bet zero or negative, DO NOT TRADE.

Step 5: Validate Against Risk Rules

Before executing, check every rule:

• [ ] Daily loss limit not exceeded (5% of portfolio)
• [ ] Weekly loss limit not exceeded (10% of portfolio)
• [ ] Maximum 5 open positions at once
• [ ] No two positions in correlated markets (e.g., "Will X win?" and "Will X lose?" are the same bet)
• [ ] Maximum drawdown from peak not exceeded (20%)
• [ ] Position size within Kelly cap

If ANY rule fails, do not trade. Log the skip with the reason.

Step 6: Document and Execute

For every trade recommendation, output this exact format:

TRADE RECOMMENDATION
====================
Market:      [market question]
URL:         [polymarket.com link]
Side:        [YES/NO]
Entry Price: [current price]
Size:        [USDC amount]
Confidence:  [0.0-1.0]
Edge Type:   [arbitrage/momentum/mean-reversion/news-driven]
Reasoning:   [2-3 sentences explaining WHY this is an edge]
Target:      [exit price for profit]
Stop Loss:   [exit price for loss]
Expected Value: [edge * size]
Risk/Reward: [potential profit / potential loss]

Never recommend a trade without filling in every field.

When NOT to Trade

Stop trading entirely if ANY of these conditions are true:

• Daily loss > 5% of portfolio: Walk away. The market will be there tomorrow.
• Weekly loss > 10% of portfolio: Stop for the rest of the week.
• Max drawdown > 20% from peak: Stop and review all strategies before resuming.
• Three consecutive losses: Pause and review. Are you following the methodology or improvising?
• No clear edge on any market: Having no position IS a position. Cash is king.
• Market is resolving within 1 hour: Too late. Prices are efficient near resolution.
• You feel compelled to "make it back": This is tilt. Stop immediately.

Common Mistakes to Avoid

1. Over-trading: More trades does not equal more profit. Wait for clear edges.
2. Chasing: A market moved 20 cents. The edge was 20 cents ago, not now.
3. Ignoring fees: On fee-bearing markets (crypto 5-min/15-min), a 3% edge at p=0.50 is break-even after the 3.15% fee. Always check.
4. Correlated positions: Holding YES on "Will X happen?" and YES on "X leads to Y" is double exposure to the same event. Count it as one position.
5. Anchoring to entry price: Your entry price is irrelevant. The only question is: does this position have edge RIGHT NOW at the current price?
6. Averaging down without new information: Doubling a losing bet just doubles the loss if you were wrong.
7. Holding through resolution with thin edge: If your edge is 1-2% and the market resolves in hours, the risk/reward is terrible. Take the small loss.

Available Scripts

Generate Trade Recommendations (scripts/advisor.py)

Scans markets, scores edges, and outputs ranked trade recommendations:

source /home/verticalclaw/.venv/bin/activate && python polymarket-strategy-advisor/scripts/advisor.py --top 5

With portfolio context (reads paper trader database):

source /home/verticalclaw/.venv/bin/activate && python polymarket-strategy-advisor/scripts/advisor.py --portfolio-db ~/.polymarket-paper/portfolio.db --top 5

Output: JSON array of trade recommendations sorted by expected value.

Backtest Engine (scripts/backtest.py)

Comprehensive performance analysis and live-readiness assessment:

source /home/verticalclaw/.venv/bin/activate && python polymarket-strategy-advisor/scripts/backtest.py

Live-readiness check only:

source /home/verticalclaw/.venv/bin/activate && python polymarket-strategy-advisor/scripts/backtest.py --live-check

Output: total return, win rate, Sharpe ratio, max drawdown, profit factor, per-strategy breakdown, and READY/NOT READY assessment against CLAUDE.md prerequisites (20+ trades, >55% win rate, Sharpe >0.5, drawdown <15%).

Daily Performance Review (scripts/daily_review.py)

Analyzes paper trading history and suggests improvements:

source /home/verticalclaw/.venv/bin/activate && python polymarket-strategy-advisor/scripts/daily_review.py --portfolio-db ~/.polymarket-paper/portfolio.db

Review past N days:

source /home/verticalclaw/.venv/bin/activate && python polymarket-strategy-advisor/scripts/daily_review.py --portfolio-db ~/.polymarket-paper/portfolio.db --days 7

Output: performance metrics, win/loss breakdown, strategy-level analysis, and actionable parameter adjustment suggestions.

Strategy References

• references/viable-strategies.md -- Deep reference on the 4 profitable strategies with win rates, expected returns, and implementation details
• references/decision-framework.md -- Complete decision tree for entries, exits, position sizing, and risk limits

Disclaimers

• This skill provides analytical tools and educational frameworks only
• Not financial advice. Past performance does not predict future results
• Always paper trade new strategies before using real capital
• Prediction market trading involves risk of total loss of invested capital