Written by: Changan I Biteye Content Team

Summary: Reviewing 4 practical strategies and 2 typical counterexamples, this will break down the underlying logic of weather betting.

In the previous article, the weather system used five methods to predict the maximum temperature, but the model will not always give a unique solution: ECMWF predicts 14°C, WC predicts 13°C, and real-time correction gives 13.5°C. Which one would you bet on?

No matter how advanced the weather system is, predictions will always fall within a range.

Moreover, the weather market has risks beyond predictions: data sources may not match, rules may change quietly, and the market may reverse in the last hour.

Therefore, predictions must be paired with trading strategies. After two weeks of practice, there have been both profits and pitfalls, which will be shared here.

1. Besides predictions, here are three pitfalls

The weather system in the previous article solved the prediction problem, but once entering the market, it was found that sometimes the reasons for losing money have nothing to do with predictions.

Mismatched data sources, quietly changing rules, and market reversals in the last hour—after experiencing these pitfalls, it becomes clear that the risks of the weather market are multi-layered, with three levels:

1. Data source issues: WU does not match METAR

The rules of the weather market generally state that WU data prevails.

WU is Weather Underground, a US meteorological platform, with data directly sourced from observed records reported by weather stations around the world. For the weather market, WU reads data from local airport weather stations.

Airport weather stations issue a standardized meteorological report every half hour, called METAR, which is the format used globally by civil aviation. It contains information such as temperature, wind speed, cloud cover, and visibility, serving as an important basis for aviation scheduling. Theoretically, the airport temperature shown by WU should come from this METAR report.

This is indeed the case for other cities; WU readings and METAR are generally in line, with negligible errors. Many traders have thus developed the habit of directly watching METAR, using it as a real-time preview of settlement temperatures.

However, the WU data for Shenzhen Bao'an Airport often does not match METAR, sometimes differing by 2 degrees.

This deviation does not need to be considered in other cities, but in Shenzhen, it can turn a potentially correct trade into a loss.

2. Frequent rule changes

Perhaps because WU and METAR have long been out of sync, Polymarket changed the data source for the Shenzhen market on March 29, shifting the settlement data source from WU to NOAA.

There is an update record on the rules page, dated March 28, with only one sentence: "This market's resolution source has been updated."

NOAA uses data from weather.gov, which closely corresponds to METAR, and often has discrepancies with WU readings.

One user named ilovebigbiscuit bet No at the 27°C mark, averaging 99.8¢, resulting in a loss of $7,883. It is likely because WU data showed the temperature would not reach 27°C, making them feel secure, but when NOAA's reading differed, they lost everything in the closing trades.

The Shenzhen weather market later reverted back to WU. A single market changed its data sources twice in just a few days.

Thus, a habit should be established: every time entering a new weather market, the first step is not to look at the temperature but to click on the Rules in the lower left corner to confirm which settlement data source is used. Skipping this step may render all subsequent analysis futile.

3. Continuous market reversals

In the Shanghai weather market over the past two weeks, a consistent pattern has emerged: a certain temperature mark starts leading the way in the morning, steadily pressuring other marks, seemingly set to settle—then, in the last hour, a sudden reversal occurs, with another mark jumping from nearly 10% to 100%.

For instance, on the day shown in the image, 20°C was the dominant mark throughout the morning, climbing to nearly 90% by 2 PM, appearing to have the majority locked in. However, after 3 PM, 21°C surged from nearly 0% to 100%, ultimately settling at 21°C. Those who bet on 20°C were correct until the last hour, but ended up wrong at settlement.

Shanghai's spring weather is inherently unstable; temperature trends in the afternoon are significantly affected by cloud cover and wind speed, meaning judgments made in the morning can become entirely invalid by the afternoon.

2. Four Practical Strategies Observed Over Two Weeks

Bettina solely on one temperature is too challenging, so most players' method is to simultaneously buy adjacent marks, as long as the total cost of these marks does not exceed $1, there is profit to be made. But even with temperature coverage, when to buy, how to buy, and which market to buy in can lead to very different outcomes. Here are several trading strategies observed over the past two weeks:

Strategy 1: Buy low-priced chips a few days in advance

A completely different thought process takes advantage of the uncertainty of weather itself.

Polymarket's weather market opens trading four days in advance. The earlier the market opens, the more dispersed the pricing of various marks, with many temperatures not yet fully priced, hanging below 5¢.

Some players specifically exploit this time difference. Today is April 1, they go to buy the weather market for April 4, sweeping through all marks priced below 5¢, buying them as long as they are cheap. The logic is simple: there are three days until the forecast, weather can change at any time, and temperatures that seem impossible today might become popular in two days, with 5¢ chips potentially increasing to 30¢, 50¢, or even higher.

The core of this strategy is betting on the potential change in weather. Holding positions until that day, as long as sufficient temperature coverage is covered within a total cost of $1, the mark that ultimately settles can recover $1, while the rest goes to zero, resulting in no overall losses. However, if some mark rises significantly in the meantime, it can be sold early to lock in profits.

Strategy 2: Capture undervalued temperatures using meteorological factors

Popular marks are usually fully priced, leading to high entry costs and compressed odds. However, there are traders who specifically look for undervalued, obscure temperatures.

These traders observe real-time meteorological factors. For example, if it is 1 PM, they will look at wind direction and speed for the next hour or two: south winds typically bring warm, moist air with potential for rising temperatures; if factors such as wind speed, cloud cover, and pressure all point in the same direction, they will bet on temperature marks that the market hasn’t reacted to yet.

Because these are obscure marks, the prices are low, leading to small entry costs, even if judgments are incorrect, losses remain limited. But if the judgment is correct, the price increase on the low-priced chips could be quite substantial.

WU's data updates every half hour; if the latest data shows that meteorological factors haven’t developed as expected, such as wind direction changing or warming stalling, they will sell off to stop losses.

This strategy requires high meteorological knowledge, needing a real understanding of how factors like wind direction and cloud cover affect temperature; it is not something that can be judged by merely glancing at the forecast, and is suited for traders with a professional background or those who have deeply immersed themselves in this market for some time.

Strategy 3: End-of-Day Strategy

The Shanghai weather market has a rule: temperature rise basically stops after 3 PM, typically seeing the highest temperature before this time.

The end-of-day strategy leverages this window. WU's data updates every half hour; after the temperature rise stops, lock onto WU's data updates with each refresh moment, entering the market immediately as Polymarket's price has yet to react, typically yielding a profit of just a few points.

There are two directions to operate: either buy Yes on the current temperature or buy No on the next higher temperature. Essentially, these two operations are the same, since warming has already stopped, leaving only these two possibilities; which one to choose depends on which price is more favorable.

The greatest risk of this strategy arises from changes during the temperature rise. The timing at which warming stops is not fixed daily; factors like cloud cover and wind speed will affect the pace of the day's temperature rise. If the assumption that warming has ended turns out incorrect, and the temperature rises again, the end-of-day judgment could become entirely invalid.

Strategy 4: New Market Limit Order Strategy

Polymarket's new weather markets have a clear characteristic: no market makers, resulting in significant spreads. The buy and sell prices may differ by several dimes, such as a buy price of 20¢ and a sell price of 60¢.

This spread represents opportunities.

Specific operations involve placing limit orders below popular temperature marks, waiting for buy orders to be filled. Due to the substantial spread, even if several popular marks are brought in, the total cost can still be kept under $1.

However, this market has a crucial characteristic to pay attention to: very low liquidity. A few hundred dollars in trading can significantly decrease the probability of the currently most popular temperature, making it appear as if it is about to lose.

Therefore, the only execution principle for this strategy is: after a limit order is filled, hold it until settlement without frequent operations. Short-term price fluctuations in a low liquidity market hold no reference value.

Strategy 5: Building Positions a Day in Advance (Counterexample)

WU publishes the maximum temperature forecast for the following day one day in advance. The most intuitive execution method is to reference this forecast, buying all three marks near the predicted temperature a day early.

Some players operate this way. On March 27, they bought the three marks of 15°C, 16°C, and 17°C, and on March 28, they bought the three marks of 19°C, 20°C, and 22°C, investing several hundred dollars in each mark while keeping the total cost under $1.

However, weather forecasts are not fixed; WU's predictive data adjusts in real-time with changing weather. A forecast calling for 22°C today may already change to 19°C by tomorrow morning. By constructing positions a day in advance, the player locked in last night's forecast, but by the time of settlement, the temperature had already deviated.

As a result, everything became zero. On the 27th, the settlement was at 19°C, and on the 28th it settled at 21°C, with the covered range differing by two to three degrees from the actual settlement.

The idea of multiple temperature coverage is correct, but entering the market too early when the forecast has not stabilized is akin to betting today's results based on yesterday's information.

Strategy 6: The No Bet Win Rate Trap (Counterexample)

Some in the comments say that betting Yes is too hard; betting none is more likely to win. But is it really viable?

The weather market typically has 11 temperature marks; betting Yes means guessing one out of 11, betting No means guessing ten out of 11. In terms of win rate, there is a natural advantage in betting No, which sounds reasonable.

However, the No for popular marks typically hangs above 80¢, with only a few marks available at such prices. If one buys all the No options priced above 80¢, assuming there are 4 popular marks:

Cost: 4 × 80¢ = $3.20

Settlement will probably land on one of these 4 popular marks, meaning 3 No bets win and 1 No bet loses:

Winning: 3 × 20¢ = 60¢

Losing: 1 × 80¢ = 80¢

Net result: loss of 20¢

The high win rate is true, but the odds completely offset the advantage of the win rate. Each win yields only a small profit, while losing once can surpass multiple profitable outcomes. The price of No has already incorporated the win rate into it, meaning buying No offers no additional advantages.

3. Predictions and Strategies, Both Are Essential

The prediction system is your "eyes," and the trading strategy is your "armor." Together, they form a complete force in weather market trading.

The weather market is still in its early stages; rules are unstable, data sources may change, and trends may reverse continuously. However, precisely because of this, there remain information gaps and opportunities.

If you are also participating in the weather market, feel free to share your operational thoughts and experiences in the comments section.

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