Kelly Criterion Calculator
Kelly Criterion
Kelly from Trade History
Formula
Kelly % = W - (1 - W) / R; where W = win probability, R = win/loss ratio (avg win / avg loss)
Frequently Asked Questions
What is the Kelly Criterion?
The Kelly Criterion is a formula that determines the optimal size of a series of bets or investments to maximize the logarithm of wealth (long-term growth rate). It was developed by John L. Kelly Jr. at Bell Labs in 1956.
Why use Half Kelly?
Full Kelly can be very aggressive and lead to large drawdowns. Most practitioners use Half Kelly (betting half the Kelly amount) or Quarter Kelly, which sacrifices some growth rate but significantly reduces volatility and drawdown risk.
What if Kelly is negative?
A negative Kelly value means you have no edge (or a negative edge). You should not bet or trade. It means your expected value is negative and you will lose money over time.
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