The instinct is to treat each weather market as an independent position — London tomorrow has nothing to do with Paris tomorrow, right? Wrong, in a way that costs operators real money during continental weather events.
Correlated weather → correlated outcomes
The heat-dome scenario
A heat dome over central Europe in July routinely lifts the daily high above forecast in London, Paris, Brussels, Amsterdam, Frankfurt and Zurich simultaneously. If your bot holds YES positions on six "Will high exceed X°C" markets across these cities and the heat dome materializes, all six resolve together — in your favor or against you. Six positions that look independent are really one underlying weather event repeated six times.
Why this matters for sizing
The strategy already runs on low-probability, high-payoff entries (6–18¢, with the edge and stop loss doing the work). That asymmetry is your engine — but it only compounds safely if no single weather event can dominate your book. Correlated positions concentrate risk exactly where the math assumes independence.
Practical position sizing rules
- Small per-market size: no single market should be a large fraction of your capital. The returns per winner are large (5–16×), so you don't need size — you need many independent shots.
- Regional cluster cap: cap total exposure to one synoptic region (Western Europe, Eastern Europe, Eastern Asia, etc.) — the cluster, not the single market, is the real position.
- Direction cap: within a cluster, cap net YES vs net NO exposure. If you're long heat across six European cities, that net cap should bind before the gross cap.
- Capital definition: capital = USDC available + open positions at current value. It adjusts as positions move.
Sizing by signal quality, not by "how likely it is"
A common mistake is to size up the markets that look "almost certain". That's backwards for this strategy — we don't trade near-certain favorites (entering an 80¢ market to make 20¢ means risking 80 to make 20; one adverse resolution erases four winners). Instead, let edge and confidence guide size within the cap: a HIGH-confidence entry with a strong edge can take the full per-market allocation; a thinner-edge or MEDIUM-confidence entry takes less. The cap is a ceiling, never a floor, and you never chase "safe" high-priced markets.
Drawdown discipline
Circuit breakers
Define a circuit breaker before you need one. A typical rule: if rolling 7-day P&L hits −15% of capital, halve all position sizes for the next 7 days. If 30-day P&L hits −25%, pause and review.
Discipline as edge preservation
This isn't about being conservative — it's about being able to trade tomorrow. The bot will surface thousands of edge-positive opportunities over time. The operator who concentrates risk and blows up on a single weather pattern in week 3 doesn't get to participate in any of them. Small size, many uncorrelated entries, and the asymmetric winners carry the curve.