TSB
Kelly Criterion Calculator
Calculate the mathematically optimal position size based on your win rate and risk/reward ratio.
%
R
USD
%
Optimal Position Size
Full Kelly Percentage
28.3%
of account per trade
Quarter Kelly (25%)
$708
Conservative
Half Kelly (50%)
$1,417
Recommended
Full Kelly (100%)
$2,833
Aggressive
You have a positive edge. Expected value per trade: +$127
What is the Kelly Criterion?
The Kelly Criterion is a mathematical formula developed by John Kelly in 1956 at Bell Labs. It calculates the optimal size of a series of bets to maximize long-term wealth growth while minimizing the risk of ruin.
Kelly % = W - [(1 - W) / R]
Where W = Win Rate (decimal) and R = Win/Loss Ratio (Risk:Reward)
Why Kelly Matters
- Maximizes growth — Mathematically optimal for long-term compounding
- Prevents over-betting — Shows when you're risking too much
- Reveals your edge — Negative Kelly means no edge (don't trade it)
- Adapts to strategy — Different setups get different sizes
Full Kelly vs Fractional Kelly
| Approach | Risk Level | Volatility | Best For |
|---|---|---|---|
| Full Kelly (100%) | Very High | Extreme swings | Perfect edge knowledge |
| Half Kelly (50%) | Moderate | Manageable | Most traders |
| Quarter Kelly (25%) | Low | Smooth curve | Uncertain edge |
Important Caveats
- Kelly assumes you know your true win rate — which requires lots of data
- It doesn't account for psychological factors or correlation between trades
- Full Kelly can lead to 50%+ drawdowns — most traders can't handle this
- Your edge changes over time — recalculate regularly
Frequently Asked Questions
What is the Kelly Criterion?
The Kelly Criterion is a mathematical formula that calculates the optimal size of a series of bets to maximize long-term wealth growth. It was developed by John Kelly in 1956 and is widely used in trading and gambling to determine position sizing.
How do you calculate Kelly Criterion for trading?
Kelly % = W - [(1-W) / R], where W is win rate (decimal) and R is win/loss ratio. For example, with 60% win rate and 1.5 R:R: Kelly = 0.60 - (0.40 / 1.5) = 0.60 - 0.267 = 33.3% of account per trade.
Should I use full Kelly or fractional Kelly?
Most traders use Half Kelly (50%) or Quarter Kelly (25%) because full Kelly is very aggressive and assumes perfect knowledge of your edge. Fractional Kelly reduces volatility and accounts for uncertainty in your win rate estimates.
What win rate do I need for positive Kelly?
You need a positive edge for Kelly to be positive. With 1:1 R:R, you need >50% win rate. With 1:2 R:R, you need >33% win rate. If Kelly is negative, you have no edge and shouldn't trade that strategy.
Is Kelly Criterion good for forex trading?
Kelly can guide forex position sizing, but use it cautiously. Full Kelly is too aggressive — most traders use 25-50% Kelly. Also, Kelly assumes you know your true win rate and R:R, which requires extensive backtesting and live trading data.
Calculate Your Real Edge
Kelly requires accurate win rate and R:R data. TSB Pro tracks your actual performance and calculates your edge automatically.
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