Guest Post: The Fear-Greed Metagame
A Manifold trader reveals how emotions power trading.
Fear and greed. These are the two driving emotions that fuel prediction market trading. While you may think you’re the most rational trader to have graced your trading terminal, I assure you, if you’re the one clicking the buttons, your emotions are playing a part in your positions. To feel is to be human.
Hi, you may know me as Quroe on Manifold, and I get up to various shenanigans on play money prediction market platforms. I make it a point to understand other traders there, not just trade on the market criteria. I’d like to pop open the hood and show you how my engine works. I am aiming this lesson at traders who have traded prediction markets for less than a year.
The comment section is ubiquitous on prediction markets. Any time you read the comments section, your emotions come into play. Every comment is appealing to your fear-greed index in some way. Heck, your emotions are in play even if you ignore all comments altogether!
Many skills you learn in office-job cybersecurity courses are of good use here! The biggest skill to master is to know when you’re under time pressure. Scammers love to use urgency to get you to make bad decisions, and prediction markets are no different. Sometimes, news breaks, and you might only have a few seconds to make a market move. Move too soon, and you risk being the victim of misinformation. Move too late, and somebody will move the market before you.
In that moment, you are in the throes of fear and greed. When faced with such a situation, I try to remember three general heuristics:
How might I be misinterpreting this news? Is all of this information up to date? Am I using accurate sources?
Why hasn’t somebody acted on this information yet? Could I truly be first to act on this information?
Am I the one in control here? Assume that there are insider traders. Would somebody with insider information be able to play me for the sucker?
When your emotions are most intense is when you are most likely to make a mistake. The most painful memories you’ll find yourself in are when you have a large position in a market, and new information comes out that makes you think your position is totally and utterly wrong. Just about every experienced trader bears a scar on their profit & loss chart from a memory like this. You are not the first to walk this path, and you won’t be the last.
If the market has already moved in response to this information, resist the immediate urge to sell off. If you’re late to the party for this news break, then the market has already repriced accordingly. Selling your shares is the same thing as buying shares in the opposite direction, and prediction markets are all about getting the best price, not about making all-or-nothing displays in the trade ledger. Sometimes the right action is no action. Take a moment, and do not act impulsively. After taking a deep breath and recentering, you can more safely decide if you want to sell or hold your position.
Another trap traders should be aware of is being drawn in as a counterparty to somebody who thinks they have an information advantage. We’re all primal monkeys that want to be understood, and when we’re understood, we feel safe. People like safety.
Let’s say a trader comes along and picks a fight with you, saying that they think the market will resolve YES. They are taking a goading stance and trying to get you to disagree with them. They are attacking your sense of safety. To defend yourself, you might be tempted to dig your heels in, argue against them, take a position against them, and bet NO. This might be what they want. I know I’ve poked and prodded people in the past when I think they have the wrong read on a market. It’s particularly effective on conspiracy theory prediction markets! If you’re being goaded, do a double-take. Prediction markets are literally a tool for monetizing disagreement, and you do not want to be the commodity on sale!
Mastery of emotion is the key to being a good trader. Fear and greed are not your enemies. Without them, you wouldn’t be able to act on new information. The trick is knowing when one of the two emotions is speaking too loudly and to listen to the other one in that moment. Playing prediction markets has been the greatest ongoing test of my “knowing thyself” by tempering these emotions against each other. I welcome anybody else to enter this crucible as a test of self-improvement.
Also, AI was not used! This is fully human written.