Don't Go to Zero: Risk Management for the Binary Trader

The Binary Trap

Prediction markets are brutal. In stocks, if you're wrong, you lose 10%. In Polymarket, if you hold to resolution and you're wrong, you lose 100%. Zero. Nada. This changes the math entirely.

The Kelly Criterion (Simplified)

Professional gamblers don't guess their bet size. They calculate it. The Kelly Criterion tells you exactly how much of your bankroll to wager to maximize growth while minimizing ruin.

Formula: f = (bp - q) / b

Here's the Tim Ferriss version: Never bet more than you can afford to lose 10 times in a row. If you have $10,000, your max bet should be $500-$1,000. Why? Because variance is real, and streaks happen.

Diversification is the Only Free Lunch

If you bet 100% of your portfolio on the US Election, you aren't a trader; you're a gambler. Split your risk.

• Uncorrelated Assets: Bet on Politics, Sports, and Science. If Trump loses, it shouldn't affect your bet on the Super Bowl.
• Time Horizons: Have some bets that resolve tomorrow (cash flow) and some that resolve next year (investments).

The "Tilt" Breaker

When you lose big, your brain wants dopamine. It wants to "win it back" immediately. This is called "tilt."

The Rule: If you lose >20% of your portfolio in a week, you take a mandatory 48-hour break. Uninstall the app. Go outside. The market will be there when you get back. Your money won't be if you rage-trade.