Trade Validation

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name: trade-validation description: | 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. version: "1.0"

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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)