Trade Fed Rate Cut Odds

This strategy trades prediction market contracts directly, without any crypto exposure. Buy YES shares when odds are cheap and rising, sell when expensive.

Visual Overview

The Concept

Thesis: Prediction market odds tend to mean-revert and trend. When odds are "cheap" (below 40%) and starting to rise, there's potential for significant upside.

Entry: Buy YES when odds are below 40% AND rising

Exit: Take profit when odds exceed 75%, or if odds drop 10 cents from entry

How Prediction Market Trading Works

Unlike crypto trading where you buy/sell assets, prediction markets work differently:

Example: If you buy YES at $0.35 (35% odds) and odds rise to $0.55, you can sell for a $0.20 profit per contract.

Strategy Setup

Data Source

Note: This strategy only needs one data source since we're trading the prediction market directly.

Analysis Block: signal

Create an Advanced Block with these outputs:

odds: fed.yes_odds
odds_yesterday: odds[6]  # 6 bars = 1 day at 4h
cheap: odds < 0.40
expensive: odds > 0.75
rising: odds > odds_yesterday

What each output does:

• odds — Current YES price (probability of rate cut)
• odds_yesterday — Yesterday's price for momentum check
• cheap — True when price is below 40 cents
• expensive — True when price exceeds 75 cents
• rising — True when price is trending up

Entry Rule

Note the direction is YES (not long), which means we're buying YES contracts.

Risk Management

Odds Stop:

If odds drop 10 cents from our entry, exit the position.

Odds Take Profit:

Take profit when we're up 20 cents per contract.

Conditional Exit:

Exit when odds become expensive (>75%), even if we haven't hit take profit.

Risk Settings

Prediction markets often use fixed dollar amounts rather than percentage risk.

Understanding Odds Mechanics

Entry Cost

Lower odds = higher potential return but also higher risk the event doesn't happen.

Why This Strategy Works

1. Value buying — Entering below 40% means potential 150%+ upside if the event happens
2. Momentum confirmation — Rising odds suggests smart money is buying
3. Early exit — Taking profit at 75% captures most gains without holding to expiration

Variations

Contrarian Entry

Buy when odds spike down (often overdone):

odds_drop: odds_yesterday - odds > 0.08
oversold: odds < 0.35 AND odds_drop

Both Sides

Trade both YES and NO based on conditions:

# Entry for YES
yes_entry: odds < 0.35 AND rising

# Entry for NO  
no_entry: odds > 0.70 AND falling

Multiple Events

Apply the same logic to different prediction markets:

# Fed rate cut
fed_cheap: fed.yes_odds < 0.40
fed_rising: fed.yes_odds > fed.yes_odds[6]

# Recession
recession_cheap: recession.no_odds < 0.40
recession_rising: recession.no_odds > recession.no_odds[6]

Key Differences from Crypto Trading

Tips

1. Watch expiration dates — Contracts settle at a specific time
2. Consider liquidity — Bid-ask spreads can be wide
3. Monitor related markets — Different legs of the same event can offer arbitrage
4. Event risk — Odds can move dramatically around FOMC meetings
5. Position limits — Prediction markets often have position limits per account