Kelly Criterion determines:

Optimal bet size for maximum growth. Kelly Criterion mathematically determines the optimal fraction of capital to risk.

Money Management Science

Optimal capital allocation mathematics

Money management science optimizes how much to risk on each trade for maximum long-term growth.

Kelly Criterion: Kelly % = (bp - q) / b Where: b = odds (avg win / avg loss), p = win probability, q = 1-p

Example: 50% win rate, 2:1 R:R Kelly = (2×0.5 - 0.5) / 2 = 25%

In practice, use Half-Kelly (12.5%) or Quarter-Kelly (6.25%) for safety margin.

Anti-Martingale (correct approach): - Increase size when winning (account grows, 1% of larger account) - Decrease size when losing (account shrinks, 1% of smaller account) - This is the opposite of gambling's Martingale system

Fixed Fractional vs Fixed Ratio: - Fixed Fractional: Always risk X% of current balance - Fixed Ratio: Increase lot size at predetermined profit milestones

Pro tip: Full Kelly is too aggressive for real trading. Use Quarter-Kelly (25% of the Kelly % result) for practical implementation..

Common mistake: Using Martingale (doubling down after losses). Better: Martingale guarantees ruin eventually. Use Anti-Martingale (proportional sizing)..

Key takeaways

Kelly Criterion calculates mathematically optimal bet size
Use Half-Kelly or Quarter-Kelly for safety
Anti-Martingale: increase size with growth
Fixed Fractional is simplest and most robust

Quiz

Kelly Criterion determines: Answer: Optimal bet size for maximum growth. Kelly Criterion mathematically determines the optimal fraction of capital to risk.

Educational content, not financial advice.