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building-trading-strategy

Building Your Trading Strategy

📅 Dec 27, 2025✍️ Poly Team⏱ 16 min read

Random trading is gambling. Systematic trading is a skill. Here's how to develop a strategy that gives you an edge in prediction markets.

Step 1: Define Your Edge

An "edge" is something you know or can do that most other traders can't. Without an edge, you're just gambling. Common edges include:

  • Domain Expertise: Deep knowledge of a specific industry or topic
  • Speed: Ability to react to news faster than others
  • Data Analysis: Using statistical models to find mispriced markets
  • Arbitrage: Finding price discrepancies between platforms

Step 2: Choose Your Markets

Don't try to trade everything. Focus on markets where your edge applies. If you're a crypto expert, stick to crypto-related markets. If you're great at analyzing polls, focus on political markets.

Specialization Beats Diversification

It's better to be an expert in one category of markets than a novice in ten. Deep knowledge compounds over time.

Step 3: Set Entry and Exit Rules

Define exactly when you'll enter and exit trades. Vague rules like "buy when it feels right" lead to emotional decisions. Instead, use specific criteria:

Entry Rules Example

  • Only trade markets with volume over $100k
  • Only buy when my analysis shows at least 15% edge
  • Never risk more than 3% of bankroll on one trade

Exit Rules Example

  • Take profit at 50% gain or when edge disappears
  • Cut losses at 30% down
  • Always exit 24 hours before resolution to avoid last-minute volatility

Step 4: Position Sizing

How much you bet on each trade matters as much as which trades you take. Use a consistent position sizing method:

Fixed Percentage

Risk the same percentage of your bankroll on every trade (e.g., 2%). This automatically scales your bets as your account grows or shrinks.

Kelly Criterion

A mathematical formula that calculates optimal bet size based on your edge and odds. Most pros use "Half Kelly" to reduce volatility.

Step 5: Track and Analyze

Keep a trading journal with every trade you make:

  • Date and time
  • Market and position
  • Entry and exit prices
  • Reasoning for the trade
  • Outcome and lessons learned

Review your journal monthly to identify patterns. Which types of trades are most profitable? Where do you make mistakes? Continuous improvement comes from honest self-assessment.

Step 6: Adapt and Evolve

Markets change. What worked last year might not work today. Stay flexible and be willing to adjust your strategy when the data shows it's no longer effective. The best traders are always learning and evolving.

Warning: Backtesting Isn't Everything

Just because a strategy worked in the past doesn't guarantee future success. Markets evolve, and past performance doesn't predict future results. Always start with small positions when testing a new strategy.