ThinkVault ToolsKelly Criterion & Trading Expectancy

Investing & stocks

Kelly Criterion & Trading Expectancy

Kelly fraction

Binary-stake Kelly proxy, not exact optimal stock exposure under partial losses; not investment advice.

Results

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Expected value per trade EV %

3.25%
Full Kelly %32.5%
Fractional Kelly position %16.25%
Allocation$16,250.00

Expected value per trade EV %

3.25%

Method and common questions

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Purpose and inputs

Use win rate and payoff ratio to estimate EV, full/half/quarter Kelly and capital allocation.

Method and assumptions

Let p be win probability and b=average win/average loss. EV=p×win−(1−p)×loss; full Kelly=p−(1−p)/b. Multiply by 1, 0.5 or 0.25 and clamp allocation to 0–100%. This is an educational binary-stake risk proxy, not the exact growth-optimal exposure for stocks with partial losses; correlations, gaps and costs are excluded.

Method

Let p be win probability and b=average win/average loss. EV=p×win−(1−p)×loss; full Kelly=p−(1−p)/b. Multiply by 1, 0.5 or 0.25 and clamp allocation to 0–100%. This is an educational binary-stake risk proxy, not the exact growth-optimal exposure for stocks with partial losses; correlations, gaps and costs are excluded.

Kelly (1956)

FAQ

What are the limitations?
Binary-stake Kelly proxy, not exact optimal stock exposure under partial losses; not investment advice.
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