1. What Is the Kelly Criterion?
The Kelly criterion is a mathematical formula for calculating how much capital to bet to maximize long-term returns.
2. The Kelly Formula
📊 Formula
f* = (p × b - q) / b
f* = optimal betting fraction
p = win rate
q = loss rate (1-p)
b = payoff ratio, average profit / average loss
Example: win rate 55%, payoff ratio 2:1
f* = (0.55 × 2 - 0.45) / 2 = 32.5%
3. Practical Application: Fractional Kelly
Full Kelly, or 100%, is too volatile, so 1/4 Kelly, or Quarter Kelly, is used in practice.
- Full Kelly: 32.5% → Extreme fluctuations.
- Half Kelly: 16.25% → A moderate balance.
- Quarter Kelly: 8.1% → More stable; recommended.
4. NOONOO TRADING Capital Management
NOONOO TRADING combines Quarter Kelly with EV-based dynamic sizing to calculate mathematically optimized position sizes.