Calculate the mathematically optimal position size based on your win rate and reward-risk ratio.
Calculate the optimal position size to maximize long-term growth based on your edge.
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The Kelly Criterion Calculator determines the mathematically optimal percentage of your trading capital to risk on each trade for maximum long-term growth. Developed by John Kelly at Bell Labs in 1956, this formula has been adopted by professional gamblers, hedge funds, and systematic traders to optimize position sizing based on edge and odds.
Unlike arbitrary position sizing (risking 1% or 2% "because it's popular"), the Kelly Criterion uses your actual win rate and reward-to-risk ratio to calculate the exact percentage that maximizes compound growth while minimizing ruin probability. It's the mathematical answer to "how much should I bet?"
Kelly % = W – [(1 – W) / R]
Where:
Alternative formula: Kelly % = (BP – Q) / B where B = odds received, P = win probability, Q = loss probability (1-P)
Example 1: Trend Following Strategy
Kelly Calculation:
Kelly % = 0.40 – [(1 – 0.40) / 2.5]
Kelly % = 0.40 – [0.60 / 2.5]
Kelly % = 0.40 – 0.24 = 0.16 (16%)
Full Kelly suggests risking 16% per trade. Half-Kelly = 8%, Quarter-Kelly = 4%. Most traders would use 4-8% with this edge.
Example 2: Scalping Strategy
Kelly Calculation:
Kelly % = 0.70 – [(1 – 0.70) / 0.8]
Kelly % = 0.70 – [0.30 / 0.8]
Kelly % = 0.70 – 0.375 = 0.325 (32.5%)
High win rate allows aggressive sizing. However, 32.5% per trade creates extreme volatility—Half-Kelly (16%) or Quarter-Kelly (8%) is safer.
Example 3: Breakeven Strategy (No Edge)
Kelly Calculation:
Kelly % = 0.50 – [(1 – 0.50) / 1]
Kelly % = 0.50 – 0.50 = 0% (Zero Edge)
Kelly of 0% means no edge exists. Trading this strategy at any position size results in long-term breakeven (minus costs = slow losses).
Example 4: Negative Edge (Don't Trade)
Kelly Calculation:
Kelly % = 0.45 – [(1 – 0.45) / 1]
Kelly % = 0.45 – 0.55 = -0.10 (-10%)
Negative Kelly means you're expected to lose money over time. Every trade reduces your account. Do NOT trade this strategy—improve win rate or R:R first.
Assess the probability of losing your entire account based on your trading statistics.
Calculate the perfect position size for your trades based on your account size, risk tolerance, and stop loss distance.
Determine your risk-reward ratio and the minimum win rate needed for profitability.
Project your trading account growth over time with the power of compound interest and consistent returns.
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