Internal rules for deciding whether the dashboard is finding tradable edge.
# Trading Operating Model
Prediction Alpha Desk is a research and paper-trading system for finding public-information mispricings in prediction markets.
The purpose is not to generate interesting market commentary. The purpose is to determine whether a repeatable, scalable process can find enough high-edge markets to justify eventual real-money deployment.
This document defines the operating rules for v0.
## Core question
For every market, ask:
> Can we estimate fair probability materially better than the market, using public information, resolution mechanics, deadlines, legal/procedural bottlenecks, local-language information, or cross-market inconsistencies?
If the answer is not clearly yes, the decision is WATCH or SKIP.
## System layers
Prediction Alpha Desk has three layers:
1. Screener
- Finds potentially interesting markets.
- Uses deterministic heuristics.
- Does not decide trades.
2. Research funnel
- Converts candidates into SKIP, WATCH, PAPER YES, or PAPER NO.
- Requires explicit reasoning and source-backed probability estimates.
3. Portfolio simulator
- Tracks paper trades, sizing, outcomes, P&L, and postmortems.
- Determines whether the strategy deserves more work or real-money testing.
## Market decisions
### SKIP
Use SKIP when any of the following applies:
- Resolution criteria are unclear or too subjective.
- The market depends mostly on vibes, narrative, celebrity attention, or unknowable private decisions.
- Liquidity is too weak for a realistic entry.
- The price may be directionally wrong but the expected ROI is too low.
- The evidence chain is too long relative to the likely edge.
- The market is interesting but not tradable.
### WATCH
Use WATCH when the market is interesting but one or more key conditions are missing:
- One critical fact needs confirmation.
- The price is not yet good enough.
- A deadline, official document, court/agency step, or event calendar is pending.
- The market belongs to a cluster that needs comparison before taking a side.
WATCH is not a trade.
### PAPER YES / PAPER NO
Use PAPER YES or PAPER NO only when the trade would be compelling enough that we would seriously consider taking it with real money after the project has proven itself.
Minimum requirements:
- Resolution criteria are clear.
- The thesis can be stated in one or two precise sentences.
- The estimated fair probability differs from market price by at least 10 percentage points.
- Expected ROI on committed capital is at least 15%.
- Liquidity and spread are good enough for a realistic paper entry.
- The trade is not merely directionally plausible; it must be meaningfully mispriced.
A strong paper trade usually has:
- 15+ percentage-point edge.
- 25%+ expected ROI.
- Clear public evidence.
- Short or medium evidence chain.
- Limited dependency on private information.
## Probability estimates
Use probability bands when precision would be fake.
Suggested labels:
- Very unlikely: 0-10%
- Unlikely: 10-30%
- Toss-up: 40-60%
- Likely: 70-90%
- Very likely: 90%+
Always record low, mid, and high fair-probability estimates where possible.
## Expected value and ROI
For a YES position:
- Edge per share = fair YES probability - YES price.
- Expected ROI = edge per share / YES price.
For a NO position:
- NO price = 1 - YES price, unless the market gives a separate NO price.
- Fair NO probability = 1 - fair YES probability.
- Edge per share = fair NO probability - NO price.
- Expected ROI = edge per share / NO price.
Do not confuse win probability with expected value. A high win-rate strategy can still be bad if one loss destroys many small gains.
## Paper sizing
Default paper stakes:
| Confidence | Paper stake |
|---|---:|
| Low | $100 |
| Medium | $250 |
| High | $500 |
| Very high | $1,000 |
Sizing rules:
- Never paper-size beyond what the liquidity could plausibly support.
- As a rule of thumb, paper stake should usually be no more than 1-3% of visible liquidity.
- Markets with extremely low liquidity may be useful for learning but should not be treated as realistic scalable opportunities.
- Avoid very extreme prices unless the edge is unusually strong or the settlement date is close.
## Research format
Each researched market should be logged, including SKIP and WATCH decisions.
Minimum fields:
- Title
- URL
- Current YES price
- Current NO price
- Deadline
- Volume
- Liquidity
- Literal resolution criteria
- Casual-trader misunderstanding
- Timeline and bottlenecks
- Evidence summary
- Fair YES probability range
- Edge versus market
- Decision
- Confidence
- Paper side and stake, if any
- Screener lesson
## Batch workflow
Do not deeply research every candidate.
For each dashboard run:
1. Review top 50.
2. Select 3-5 highest edge-per-research-hour candidates.
3. Research those only.
4. Log all decisions.
5. Update screener rules only when a repeated pattern appears.
The goal is not maximum research volume. The goal is disciplined conversion from candidate to trade/no-trade.
## Preferred market features
Prioritize markets with:
- Clear resolution criteria.
- Near or medium-term deadlines.
- Official sources.
- Legal/procedural gates.
- Ballot access, court, agency, parliamentary, party-rule, or election-calendar mechanics.
- Local-language information gaps.
- Cross-market or cluster inconsistencies.
- Prices that imply casual misunderstanding.
## Lower-priority market features
Do not automatically reject these, but demand better evidence:
- Long-dated political popularity markets.
- Celebrity or narrative-driven markets.
- Awards markets with opaque juries.
- Very high-price or very low-price markets with poor capital efficiency.
- Markets where the only thesis is polling, vibes, or general political intuition.
- Markets requiring very deep specialist expertise without a clear public-information trap.
## Success thresholds
After 25 researched paper decisions:
- Check whether at least 5 credible PAPER trades were found.
- Check whether the average stated edge on PAPER trades was 10+ percentage points.
- Check whether the process is producing actionable candidates often enough.
After 50 researched paper decisions:
- Evaluate paper P&L.
- Evaluate realized ROI.
- Evaluate win rate by price bucket.
- Evaluate whether wins were for the stated reasons.
- Identify categories that deserve promotion or demotion.
After 100 researched paper decisions:
- Decide whether the project has a real edge.
- If not, narrow the scope or pull the plug.
- If yes, consider a tiny real-money pilot with strict limits.
## Pull-the-plug criteria
Consider stopping or radically narrowing the project if:
- Fewer than 10% of researched candidates become credible PAPER trades.
- Paper P&L is negative after a meaningful sample.
- Most wins are luck or vague narrative calls.
- The best opportunities are too illiquid to matter.
- The process requires too much manual research for too little expected value.
- The screener repeatedly surfaces markets that cannot be converted into high-confidence decisions.
## Scale criteria
Only consider real-money testing after:
- A meaningful paper ledger exists.
- The process shows positive paper P&L.
- The best categories are identifiable.
- The same kind of edge appears repeatedly.
- The losses are understandable and survivable.
- The system has shown discipline in skipping weak markets.
## Current v0 stance
The project is in paper-trading calibration mode.
No real-money trading.
No automatic trading.
No hidden discretionary bets.
No expanding the stack before the ledger proves value.
Every market is either:
- A paper trade,
- A watch item,
- A skip,
- Or a screener lesson.