Trade Validation

10-dimension weighted scoring framework for prediction market trade evaluation. Enforces disciplined position sizing, circuit breakers, and mandatory counter-arguments. Use when: evaluating prediction market trades, scoring opportunities, deciding position sizes, comparing Polymarket/Kalshi opportunities, running pre-trade checklists. Don't use when: general crypto analysis, DeFi yield farming, non-prediction-market investments, stock/equity analysis, sports betting (different framework needed). Negative examples: - "Should I buy ETH?" → No. This is for prediction markets with binary/discrete outcomes. - "What's the best DeFi yield?" → No. Wrong domain entirely. - "Score this sports bet" → No. Sports betting has different dimensions (injuries, matchups). Edge cases: - Crypto prediction markets (e.g., "Will BTC hit $X?") → YES, use this if on Polymarket/Kalshi. - Multi-outcome markets → Score each outcome separately. - Markets with <$25 liquidity → Auto-fail on Liquidity dimension.

Trade Validation — 10-Dimension Scoring Framework

Rule: NO trade executes without 80%+ weighted confidence score. Any single dimension below 4/10 = AUTOMATIC VETO.

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Scoring Dimensions

#	Dimension	Weight	What It Measures
1	Information Edge	18%	Do we know something the market doesn't?
2	Source Quality	12%	How reliable are our sources?
3	Market Efficiency	10%	Is this market likely mispriced?
4	Time Horizon	8%	How long is capital locked up?
5	Downside Protection	15%	What's the worst case?
6	Cross-Validation	12%	Do multiple independent signals agree?
7	Historical Accuracy	5%	Track record on similar bets?
8	Liquidity/Execution Risk	7%	Can we get in AND out?
9	Consensus Divergence	8%	How far are we from market consensus?
10	Event Catalyst	5%	Is there a known resolution trigger?

Total: 100%

Calculation

Weighted Score = Σ(dimension_score / 10 × weight) × 100

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Threshold Rules

Weighted Score	Action	Bet Size
< 80%	❌ NO TRADE	$0
80–84%	✅ Minimum	$3–5
85–89%	✅ Standard	$5–7
90%+	✅ Conviction	Up to $7.50 (max 10% bankroll)

Veto Rules

• Any dimension < 4/10 → AUTOMATIC VETO regardless of total score
• Rationale: A critical weakness in any area (e.g., Liquidity = 2 means you're trapped)

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Risk Management

• Max position: 10% of portfolio per trade
• Min market liquidity: $25 (below this, don't trade)
• Max open exposure: 30% of bankroll across all positions
• Daily loss circuit breaker: $8 loss in a day → ALL trading stops for 24 hours
• Cool-down: No trade within 1 hour of a loss
• No revenge trading: Last loss must be >24h ago OR new trade is unrelated
• No trading 12am–7am unless time-critical

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Mandatory Counter-Arguments

Every trade MUST document:

1. Why could we be WRONG? (not a strawman — a genuine strong counter-argument)
2. What would change our mind? (specific falsification criteria)
3. Exit strategy: When do we sell early?

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Score Card Template

TRADE SCORE CARD
═══════════════════════════════════════════════════════════
Market: [name]
Date: [date]
Position: [YES/NO @ price]

 #  Dimension              Weight   Score   Weighted
─── ────────────────────── ──────── ─────── ──────────
 1  Information Edge        18%     __/10   __._%
 2  Source Quality           12%     __/10   __._%
 3  Market Efficiency        10%     __/10   __._%
 4  Time Horizon              8%     __/10   __._%
 5  Downside Protection      15%     __/10   __._%
 6  Cross-Validation         12%     __/10   __._%
 7  Historical Accuracy       5%     __/10   __._%
 8  Liquidity/Execution       7%     __/10   __._%
 9  Consensus Divergence      8%     __/10   __._%
10  Event Catalyst             5%     __/10   __._%
─── ────────────────────── ──────── ─────── ──────────
                    TOTAL   100%            __._%

Minimum Score: __/10 (dimension: _____________)
VETO Check: [ ] All dimensions ≥ 4 — PASS / FAIL

Counter-argument: ________________________________
What would change our mind: _____________________
Exit strategy: __________________________________

RESULT: TRADE / NO TRADE
Tier: [ ] Min ($3-5)  [ ] Standard ($5-7)  [ ] Conviction ($7.50)
═══════════════════════════════════════════════════════════

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Pre-Trade Checklist

RESEARCH
  [ ] Minimum 3 independent sources consulted
  [ ] Sources documented with links
  [ ] Strong counter-argument documented
  [ ] Counter-argument is genuine (not strawman)

SCORING
  [ ] All 10 dimensions scored
  [ ] Weighted score ≥ 80%
  [ ] No dimension below 4/10
  [ ] Score logged to trade journal

RISK
  [ ] Current bankroll: $______
  [ ] Bet ≤ 10% of bankroll
  [ ] Total open exposure ≤ 30%
  [ ] Daily loss < $8 (circuit breaker not triggered)

DISCIPLINE
  [ ] Cool-down respected (1h since last loss)
  [ ] Not revenge trading
  [ ] Not trading 12am–7am

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Detailed Scoring Rubric

See references/scoring-rubric.md for the full 1–10 rubric for each dimension.

Trade Journal

Log every scored trade (pass or fail) to projects/polymarket/trade-journal/:

## [DATE] — [MARKET NAME]
- **Score:** XX.X%
- **Result:** TRADE / NO TRADE / VETO
- **Position:** YES/NO @ XXc | **Stake:** $X.XX
- **Outcome:** WIN / LOSS / PENDING
- **P&L:** +/- $X.XX
- **Lesson:** (post-resolution)