Kelly calculates optimal bet size to maximize long-term wealth. f* = (bp - q)/b. Many use fractional Kelly (f*/2) for safety.
f* = (bp - q) / b
q = 1 - p (probability of loss)
// Kelly Criterion for optimal position sizing
function kellyCriterion(winProbability, payoutRatio) {
const p = winProbability / 100; // Convert %
const q = 1 - p; // Loss probability
const b = payoutRatio; // Win/Loss ratio
// Full Kelly
const kelly = (b * p - q) / b;
return Math.max(0, kelly); // Can't bet negative
}
// Example: 55% win rate, 1:1 payout
// f* = (1 × 0.55 - 0.45) / 1 = 0.10 = 10%
// Half-Kelly (more conservative)
// const halfKelly = kelly / 2;