The Kelly criterion: does anyone actually use it?
Kelly says how much to bet to maximise growth, given your edge — and full Kelly is violently aggressive for trading, so practitioners use fractions. The maths is elegant; the inputs (your true edge) are guesses.
Have you tried it?
- the fraction you used and why
- how it felt through a losing streak
- what you'd tell someone curious about Kelly sizing
The expectancy guide supplies the inputs Kelly needs.
Background: Risk-reward ratio, win rate and expectancy: the maths behind a trading edge
A high win rate can still lose money. See how win rate and risk-reward combine into expectancy, with break-even win rates and worked examples.
What is a good risk-reward ratio in forex?
There isn't one right ratio. What matters is expectancy, the win rate and ratio together. A 1:2 ratio breaks even at about 33% winners before costs, while a 1:1 ratio needs 50%.
How do you calculate trading expectancy?
Multiply the win rate by the average win and subtract the loss rate multiplied by the average loss. Measuring wins and losses in multiples of the amount risked (R) makes the result easy to compare.
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