π Quant & Trading
Quant - Kelly Criterion
A mathematical formula for the **optimal bet size** given your edge and odds. Originally from information theory (John Kelly, Bell Labs, 1956), now the standard for position sizing in quantitative trading.
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Minutes
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Concepts
+15+30
Read+Quiz
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The Formula
Kelly % = W - (1 - W) / R Where: W = win rate (probability of winning) R = win/loss ratio (average win / average loss) Example: 55% win rate, average win = 2%, average loss = 1.5% Kelly = 0.55 - (0.45 / 1.33) = 0.55 - 0.34 = 21% -> Bet 21% of portfolio per trade