Kelly Criterion Explained
The Kelly Criterion is a formula that determines the optimal fraction of your bankroll to bet in order to maximize the expected logarithm of wealth — i.e., long-term growth rate.
f* = (bp − q) / b
Where: b = decimal odds − 1 (net odds), p = your estimated win probability, q = 1 − p (loss probability).
Why Half Kelly?
Full Kelly maximizes growth mathematically but causes large swings (drawdowns of 50%+ are common). Most professional bettors use Half Kelly or Quarter Kelly to reduce variance while still capturing most of the growth benefit.
The Critical Variable: Edge Estimation
The Kelly formula is only as good as your win probability estimate. Overestimating your edge leads to overbetting and ruin. Always err on the conservative side when estimating your probability.