Risk-Reward and Appropriate Position Sizing in Polymarket

Hello everyone in the Polymarket room,

Today, let's discuss a fundamental topic that many might overlook when trading in the Polymarket: Risk-Reward Ratio and appropriate Position Sizing.

When we trade on Polymarket, we're not just trading the price of 'Yes' or 'No'; it's about the probability of 'Yes' or 'No' actually happening. If we buy 'Yes' at 0.20, believing there's a 50% chance it will occur, we're looking for a Reward of 0.80 baht (from 0.20 to 1.00) with a Risk of 0.20 baht (if it doesn't happen, we lose everything). This means our Risk-Reward Ratio is 1:4, which is theoretically very good.

But the problem is we don't know the true probability, and more importantly, how much money should we put in? Suppose there's a very interesting event, but the chance of success is still uncertain. We might choose to allocate only 1-2% of our portfolio. If the $ABC market is trading between 179.24–180.93 and we're looking for a breakout above 180.93, which has some uncertainty, allocating only a small amount to see if the Upside is worth the risk is good risk management. Don't go all-in just because it 'seems' right, because 'seems' and 'is real' are very different. And don't forget that sometimes the market does unexpected things. For example, with $SLV trading in a narrow range of 53.235–54.29 recently, hoping for a large Reward must be balanced with well-calculated risk.