Calculate the theoretically optimal risk percentage for your trading system.
Full Kelly
Half Kelly
Quarter Kelly
Reward / Risk Ratio
Expectancy
Quick Summary
Kelly Criterion is a position sizing formula used to estimate the optimal fraction of capital to risk based on the edge of a trading system. It uses your win rate and your reward-to-risk ratio to calculate the mathematically optimal growth rate.
The formula is:
Where W is your win probability and R is your reward-to-risk ratio.
Full Kelly can be too aggressive in real markets because trading results are never perfectly stable. That is why many traders prefer Half Kelly or Quarter Kelly to reduce volatility and drawdown.
Usually no. Full Kelly is mathematically optimal in theory, but it can create very large volatility in real trading. Many traders prefer Half Kelly or Quarter Kelly for better survivability.
A negative Kelly value means your system does not have a positive edge based on the inputs provided. In that case, the strategy may not be worth trading without improvement.
Yes. Kelly Criterion is universal. It can be applied to any market as long as you have realistic estimates for win rate and average reward versus average loss.