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Kelly Criterion Calculator

Calculate optimal position sizing based on win rate and risk/reward ratio. Professional money management tool for maximizing long-term growth.

Trading Parameters

Percentage of trades that are winners

Average profit per winning trade

Average loss per losing trade

Total trading capital available

10%Quarter (25%)Half (50%)Full (100%)

Conservative traders use 25-50% of Kelly recommendation

Kelly Percentage

Enter parameters to calculate Kelly %

Optimal Position Size

Position details will appear here

Kelly Tips

Full Kelly can be aggressive - use fractional Kelly (25-50%)
Negative Kelly % means you have no edge - don't trade
Kelly maximizes long-term growth, not short-term profits
Requires accurate estimates of win rate and avg win/loss

Understanding the Kelly Criterion

Master optimal position sizing for long-term trading success

What is Kelly Criterion?

The Kelly Criterion is a mathematical formula used to determine the optimal size of a series of bets to maximize long-term growth of capital.

Formula:

K% = W - [(1 - W) / R]

W = Win rate, R = Win/Loss ratio

Fractional Kelly

Most professional traders use 25-50% of the Kelly recommendation to reduce volatility and account for estimation errors.

  • • Half Kelly: 50% volatility, 75% growth rate
  • • Quarter Kelly: 25% volatility, safer approach
  • • Reduces drawdowns significantly

Common Mistakes

Avoid these pitfalls when applying the Kelly Criterion to your trading.

  • • Using full Kelly (too aggressive)
  • • Inaccurate win rate estimates
  • • Ignoring transaction costs
  • • Not adjusting for market conditions

Frequently Asked Questions

Q
Should I use full Kelly or fractional Kelly?

Most professional traders recommend using fractional Kelly (25-50% of full Kelly) because:

  • Reduces volatility and drawdowns significantly
  • Accounts for estimation errors in win rate and R:R
  • More psychologically comfortable during losing streaks
  • Still captures majority of long-term growth potential

Q
What if my Kelly percentage is negative?

A negative Kelly percentage means you have a negative edge - the system is expected to lose money over time. This indicates:

Do NOT Trade This Strategy

  • Your win rate is too low for your risk/reward ratio
  • The strategy has no mathematical edge
  • Long-term expected value is negative

Either improve your win rate, increase your reward/risk ratio, or find a different trading strategy.

Q
How do I calculate my actual win rate and average win/loss?

Use your trading history to calculate accurate statistics:

Win Rate:

Win Rate = (Winning Trades ÷ Total Trades) × 100

Example: 55 wins out of 100 trades = 55%

Average Win/Loss:

Sum all wins ÷ Number of wins

Sum all losses ÷ Number of losses

Use at least 30-50 trades for statistical significance. More data = more accurate Kelly %.

Q
Can Kelly Criterion guarantee profits?

No, Kelly Criterion does NOT guarantee profits. It's a position sizing tool that:

  • Maximizes long-term growth rate if your edge estimates are accurate
  • Assumes you have an actual positive edge in the market
  • Can still experience significant drawdowns
  • Requires disciplined execution over many trades

Key Point: Kelly is only as good as your edge. Without a real edge, even optimal position sizing won't help.

Q
How often should I recalculate my Kelly percentage?

Recalculate your Kelly percentage regularly as your trading performance evolves:

Rolling Window:

Use last 30-100 trades for current estimates

Monthly Review:

Recalculate at least monthly or after significant changes

Market Conditions:

Adjust when market volatility changes significantly

Your edge changes over time - keep your Kelly calculations updated.

Q
What's the difference between Kelly and fixed percentage position sizing?

Kelly Criterion is dynamic and based on your edge, while fixed percentage is static:

Kelly Criterion:

  • • Adjusts to win rate & R:R
  • • Maximizes growth rate
  • • Can be aggressive
  • • Requires accurate data

Fixed % (e.g., 2%):

  • • Same % every trade
  • • Simple to implement
  • • More conservative
  • • Doesn't optimize growth

Many traders combine both: use Kelly to find optimal %, then apply fixed % of that (e.g., 50% of Kelly).

Real-World Kelly Examples

See how different win rates and risk/reward ratios affect position sizing

Strong Edge

Profitable
Win Rate:60%
Avg Win:$500
Avg Loss:$300
R:R Ratio:1.67:1
Full Kelly
36.02%
Half Kelly (Recommended)
18.01%

Moderate Edge

Balanced
Win Rate:50%
Avg Win:$600
Avg Loss:$400
R:R Ratio:1.50:1
Full Kelly
16.67%
Half Kelly (Recommended)
8.33%

Small Edge

Cautious
Win Rate:45%
Avg Win:$700
Avg Loss:$400
R:R Ratio:1.75:1
Full Kelly
13.57%
Quarter Kelly (Recommended)
3.39%
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