Kelly Criterion Observed to Be Adhered by Psychopaths?

What is a good Kelly criterion?

One rule to keep in mind, regardless of what the Kelly percentage may tell you, is to commit no more than 20% to 25% of your capital to one equity. Allocating any more than this carries far more investment risk than most people should be taking.

What is the Kelly method?

The Kelly criterion is a mathematical formula relating to the long-term growth of capital developed by John L. Kelly Jr. while working at AT&T’s Bell Laboratories. It is used to determine how much to invest in a given asset, in order to maximize wealth growth over time.

How is Kelly criterion calculated?

The article I found and many like it use the formula Kelly % = W – [(1 – W) / R], where W is the win probability and R is the ratio between profit and loss in the scenario. For this investment, W is 60% and R is 1 (20%/20%). The loss is expressed as a positive.

What is half Kelly?

Halving Kelly stakes halves the probability of losing 20% of your bankroll. Halving the stakes again reduces it almost to zero. For losses of 40%, the risk reduction is even more significant.

How do you use Kelly Criterion?

The Kelly Criterion Equation.

For an even money bet, the formula is pretty straightforward. Simply multiply the percent chance to win by two, then subtract one, and you’ll have your wager size percentage.

Does the Kelly Criterion work?

The Kelly criterion not only works at its finest when we know the actual probability and net income of our bets, but it is also superior to any essentially different strategy when we just know the probability distribution of the returns.

Why does the Kelly Criterion work?

Although it’s one of many tried and tested staking methods, the Kelly Criterion is seen as the best due to the fact that it protects your bankroll while still ensuring you stake funds that are proportionate to the positive expected value (or “edge”) that you have over the market.

What is Kelly fractional?

Fractional Kelly is Mean-Variance optimal

Given a trade-off between maximising returns (equivalently log(wealth)) and for a specific variance of returns, the optimal strategy is a linear combination of the Kelly-strategy and the “hold cash” strategy.

What is the Kelly percentage?

Kelly % = percentage of capital to be put into a single trade. W = Historical winning percentage of a trading system.