The previous article discussed five methods used by the weather system to predict the highest temperature, but models don't always provide a single solution: ECMWF calculates 14℃, WC calculates 13℃, and the real-time correction gives 13.5℃. Which one would you bet on? No matter how perfect the weather system is, predictions are always within a range. Moreover, the weather market carries risks beyond prediction: data sources may not match, rules may change quietly, and market trends may reverse in the last hour. Therefore, predictions must be combined with trading strategies. After two weeks of practical experience, some made money, while others encountered pitfalls, which I'll share. I. Beyond Prediction, There Are Three Pitfalls The weather system in the previous article solved the prediction problem, but once in the market, it became clear that losses sometimes had nothing to do with predictions. Data source inconsistencies, rule changes, and market reversals in the last hour—after experiencing these pitfalls, it became clear that the risks in the weather market go beyond just prediction; there are three layers: 1. Data Source Issues: WU and METAR Don't Match Weather market rules generally state that WU data is the standard. WU stands for Weather Underground, an American weather platform whose data comes directly from observation records reported by weather stations around the world. For the weather market, WU reads data from local airport weather stations. Every half hour, these stations send a standardized weather report called METAR, a globally used format for civil aviation. This report contains information such as temperature, wind speed, cloud cover, and visibility, serving as a crucial basis for air traffic control. Theoretically, the airport temperature displayed by WU should come from this METAR report. This is indeed the case for airports in other cities; WU readings and METAR are generally consistent, with negligible errors. Many traders have thus developed the habit of directly monitoring METAR, treating it as a real-time preview of the settlement temperature. However, WU data and METAR at Shenzhen Bao'an Airport frequently do not match, sometimes differing by as much as 2 degrees Celsius. This discrepancy is negligible in other cities, but in Shenzhen, it can directly turn a correct trade into a loss. 2. Frequent Rule Changes Perhaps due to the long-term mismatch between WU and METAR, Polymarket changed its data source for the Shenzhen market on March 29th, switching the settlement data source from WU to NOAA. There's an update record on the rules page, dated March 28th, with only one sentence: "This market's resolution source has been updated." NOAA uses data from weather.gov, which closely correlates with METAR and often deviates from WU's readings. An account named ilovebigbiscuit bet "No" on the 27°C level, averaging 99.8¢, resulting in a loss of $7,883. Most likely, WU's data indicated the temperature wouldn't reach 27°C, leading to a belief that it was safe, but the NOAA reading was different, resulting in a complete loss by trading at the close.The Shenzhen weather market later switched back to WU. One market changed its data source twice within just a few days. Therefore, I developed a habit: every time I enter a new weather market, the first thing I do isn't check the temperature, but click on the Rules in the lower left corner to confirm which data source is being used for settlement. Skipping this step means all subsequent analysis might be wasted. 3. Continuous Reversals in the Shanghai weather market: Over the past two weeks, the same trend has repeatedly occurred: a certain temperature range leads from the morning, steadily suppressing other ranges in probability, and just as settlement is about to begin, it suddenly reverses in the last hour, with another range jumping from nearly 10% to 100%. Like the day in the image, 20°C was the dominant range from the morning, rising to nearly 90% by 2 PM, seemingly a done deal. However, after 3 PM, 21°C reversed from nearly 0% to 100%, ultimately settling at 21°C. Those who bet on 20°C were correct until the last hour, but were all wrong at settlement. Shanghai's spring weather is inherently unstable, with afternoon temperature trends heavily influenced by cloud cover and wind speed. Predictions made in the morning may become completely invalid by the afternoon. Two to two weeks of observation revealed four practical trading strategies. Betting on a single temperature is too difficult to predict correctly, so most players simultaneously buy several adjacent price levels. As long as the total cost of these levels doesn't exceed $1, it's profitable. However, even with multiple temperature levels, the timing, method, and market choice can significantly affect the outcome. Here are some trading strategies observed over the past two weeks: Strategy 1: Buying low-priced units a few days in advance. This approach is entirely different, leveraging the inherent uncertainty of weather. Polymarket's weather market opens four days in advance. The earlier the market opens, the more dispersed the pricing across different levels, and many temperature probabilities haven't been fully priced in, remaining below 5¢. Some players specifically capitalize on this time difference. Today is April 1st, so they buy in the April 4th weather market, scanning all price levels below 5¢, buying as soon as it's cheap enough. The logic is simple: the forecast is for three days, and the weather could change at any time. Temperatures that seem impossible today might become hot spots in a couple of days, and a 5¢ bet could rise to 30¢, 50¢, or even higher. The core of this strategy is betting on a weather change. Hold the position until the day of the event. As long as you cover enough price levels and keep the total cost below $1, you'll recover $1 from the final settlement price level, and the rest will be worthless, resulting in no overall loss. However, if a price level experiences a significant increase, you can sell early to lock in profits. Strategy Two: Use weather factors to capture undervalued, popular temperature levels. These levels are usually already fully priced in, resulting in high costs and very low odds.However, there's a group of traders in the market who specifically do the opposite, targeting undervalued, less popular temperature ranges. These traders monitor real-time weather factors. For example, if it's 1 PM, they'll look at the wind direction and speed for the next hour or two: southerly winds usually bring warm, humid air currents with potential for warming; if wind speed, cloud cover, and air pressure all point in the same direction, they'll bet on temperature ranges the market hasn't yet reacted to. Because these are less popular ranges, prices are low, entry costs are small, and even if the prediction is wrong, the loss is limited. But if the prediction is correct, the gains from these low-priced positions can be substantial. WU's data is updated every half hour. If the latest data shows that weather factors aren't developing as expected—for example, the wind direction has changed or warming has stalled—they'll sell to stop the loss. This strategy requires a high level of meteorological knowledge; it requires a true understanding of how factors like wind direction and cloud cover affect temperature. It's not something you can judge by just glancing at a forecast. It's suitable for traders with a professional background or those who have been deeply involved in this market for some time. Strategy Three: End-of-Day Strategy. There's a pattern in the Shanghai weather market: warming generally stops after 3 PM, and the highest temperature usually occurs before then. The closing strategy utilizes this window. WU data is updated every half hour. After the warming trend stops, monitor WU's half-hourly updates and enter the market the instant the data is refreshed. At this time, Polymarket's price hasn't had time to react, usually resulting in only a few points of profit. There are two operational directions: buy the "Yes" for the current temperature, or buy the "No" for the next higher temperature. These two operations are essentially the same because the warming trend has stopped, leaving only these two possibilities. Which one to choose depends on which price is more profitable. The biggest risk of this strategy is the changes during the warming period. The time when the warming stops each day is not fixed; cloud cover, wind speed, and air masses will all affect the daily warming pace. If you judge that the warming has ended, but the temperature later rises again, the closing judgment will be completely invalid. Strategy Four: New Market Placing Order Strategy Polymarket's new weather market has a distinct characteristic: there are no market makers, and the spread is very large. The difference between the best bid and ask prices can be tens of points, for example, the best bid price is 20¢, and the best ask price is 60¢. This spread is the opportunity. The specific operation involves placing buy orders at popular temperature levels and waiting for them to be filled. Because the spread is large enough, even if orders are placed at several popular levels, the total cost can be kept below $1. However, this type of market has one crucial characteristic to be aware of: extremely low liquidity. A few hundred dollars in trading can drive down the probability of the current most popular temperature, making it appear as if it's about to lose.Therefore, the only principle for executing this strategy is: after placing an order, hold it until settlement and avoid frequent trading. Short-term price fluctuations have no reference value in a low-liquidity market. Strategy Five: Establishing Positions One Day in Advance (Counterexample) WU releases its high temperature forecast for the next day one day in advance. The most intuitive way to execute this strategy is to refer to this forecast and buy into the three price ranges near the predicted temperature one day in advance. Some traders have done this. On March 27th, they bought into the 15°C, 16°C, and 17°C ranges one day in advance, and on March 28th, they bought into the 19°C, 20°C, and 22°C ranges, investing several hundred dollars in each range, keeping the total cost below $1. However, weather forecasts are not fixed, and WU's forecast data is adjusted in real time according to weather changes. Today's forecast is 22°C for tomorrow, but tomorrow morning it may have changed to 19°C. Establishing positions one day in advance locks in last night's forecast, but by the time of settlement, the temperature has long since deviated. The result is all zero. The settlement temperature on the 27th was 19°C, and on the 28th it was 21°C, a difference of two or three degrees between the covered range and the actual settlement. The idea of covering multiple temperatures is correct, but the entry time was too early; establishing a position before the forecast stabilized is equivalent to betting on today's result using yesterday's information. Strategy Six: The Winning Rate Trap of Buying No (Counterexample) Some commenters say that buying Yes is too difficult to predict, and you can't guess any of them correctly, so buying No has a higher winning rate. But is that really true? The weather market usually has 11 temperature ranges. Buying Yes means guessing 1 out of 11 correctly, while buying No means guessing 10 out of 11 correctly. No has a natural advantage in terms of winning rate, which sounds reasonable. However, No for popular ranges is usually listed at over 80¢, and only a few ranges have such a price. If you buy all No's above 80¢, assuming there are 4 popular price levels: Cost: 4 × 80¢ = $3.20. The settlement price will most likely fall into one of these 4 popular price levels, meaning 3 No's wins and 1 No's loss: Win: 3 × 20¢ = 60¢ Loss: 1 × 80¢ = 80¢ Net result: Loss of 20¢. The win rate is indeed high, but the odds completely offset this advantage. Each win only yields a small profit, while a single wrong guess can wipe out several wins. The price of No's already incorporates the win rate; buying No's offers no additional advantage. III. Prediction and Strategy: Both are indispensable. The prediction system is your "eyes," and the trading strategy is your "armor." Together, they create a complete and invincible weather market trading system. The weather market is still in its early stages; rules are unstable, data sources change, and market trends can reverse continuously. But precisely because of this, information asymmetry exists, and opportunities remain. If you are also trading in the weather market, feel free to share your trading strategies and experiences in the comments section. 👏 [Biteye]