Here are the 10 steps I recommend to get started on PredictIt:
Think Carefully about Whether PredictIt Is a Good Fit for You: Think about whether there are other aspects of your personality or background that might affect your ability to be a good trader.
Learn about Cognitive Biases: There are certain predictable,systematic ways we humans draw conclusions about the world that lead to irrational predictions. Simply being aware of these will give you an advantage as an investor. Some relatively simple ones that are important in prediction markets are optimism and overconfidence bias, as well as the disposition effect.
Read Like a Fox: Pick a few books, magazines, or journals on a variety of issues that might help you to become a better investor. I’m reluctant to make any recommendations because I think there are myriad areas of study that can inform predictive abilities. In fact, the right works of fiction could do the trick. Just start with what interests you without delving too much into one area. Your ability to select relevant sources with little guidance is an indicator of your skills as an investor.
Acquaint Yourself with PredictIt.org: Spend some time on the website. Identify the markets that interest you. Follow their prices for a few days or even a few weeks. Read the comments section and see if you can discern genuine information from “pumps”and fake news.
Follow Expert Tips: Sign up for my newsletter and follow me on Twitter. Other good newsletters are Jason Pipkin’s Predicting Politics and Alex Keeney’s Star Spangled Gamblers. You probably won’t agree with much of our analysis, and you’ll almost certainly have a different risk tolerance. But use these insights as case studies of investors who are consistently beating the markets. Compare our approach to other successful investors. @rainbow_jeremy_, for example, is reportedly making $15,000 to $25,000 a month largely through his active betting in the Trump tweets markets—markets I stay out of due to my lack of interest and expertise in the space. Use these examples to help you figure out a strategy that resonates with your interests, strengths, and expertise.
Deposit the Right Amount of Money: It’s important to start out with the right amount of money. Make sure you’re investing enough money that you care about the outcome, but not more than you’re willing to lose. You may want to start out with a number like $100 or $1000, which will make it easy for you to track gains and losses.
Create a System to Track Your Performance: Track not only your gains and losses, but also the volatility. How many months are you up, how many down? What’s your worst peak to trough drawdown on a percentage basis? Make sure to account for the high trading fees PredictIt imposes. Trading without a precise system will leave you particularly susceptible to calibration error: misestimating (usually overestimating) the likelihood that you are right.
Start with Tight Markets: At least until you gain some experience, start out in the “Most Predicted” markets, which tend to have narrow bid-ask spreads and large volumes of trades. Look for markets where the available Yes shares are within one percentage point of available No shares. That way, you know that the markets have settled on a particular price and you can easily gauge if your judgment is better or worse than the crowds.
Join a Mastermind Group: If you are enjoying PredictIt and want to stick with it over the long-run, I’d suggest creating or joining a superteam. Logistically, Slack and private Facebook groups both work reasonably well.
Create a Checklist: One of the easiest and most effective ways to improve your returns is to use a checklist. I first learned about the concept in Atul Gawande’s terrific book The Checklist Manifesto: How to Get Things Right. I encourage you to read the book, but the basic idea is that a simple checklist can reduce errors in complex situations where people are prone to making the same mistakes. Investors in particular have used checklists with astonishing results.
The checklist should be based on an analysis of where you, as an individual, need reminders. It should be reassessed constantly, but kept to a manageable length.
If you’re inclined to ignore the advice about following a checklist, I’d strongly urge you to consider that this is both a common reaction, and one that will cost you money. Here’s Gawande’s explanation of why even professionals often resist checklists despite the overwhelming evidence of their efficacy:
We don’t like checklists. They can be painstaking. They’re not much fun. But I don’t think the issue here is mere
laziness. There’s something deeper, more
visceral going on when people walk away…from making money. It somehow feels beneath us to use a
checklist, an embarrassment. It runs counter
to deeply held beliefs about how the truly great among us – those we aspire to
be – handle situations of high stakes and complexity. The truly great are daring. They improvise. They do not have protocols and checklists.