Kelly Criterion
A mathematical formula for determining the optimal bet size based on edge (win probability and payoff ratio) to maximize long-term growth.
Explained Simply
The Kelly formula: f* = (bp - q) / b, where b = odds received (reward/risk), p = win probability, q = loss probability (1-p). If you win 60% of the time with a 1:1 payoff, Kelly says bet 20% of capital. In practice, traders use "fractional Kelly" (half or quarter Kelly) because the formula assumes perfect knowledge of your edge, and overbetting is more destructive than underbetting.
How Tradewink Uses Kelly Criterion
Tradewink's PositionSizer uses fractional Kelly (25-50% of full Kelly) as one input for position sizing. The win probability comes from the AI conviction score and historical signal accuracy. The payoff ratio comes from the signal's risk/reward ratio. Kelly sizing is then capped by max-position-percentage rules and portfolio heat limits.
Related Terms
See Kelly Criterion in action
Tradewink uses kelly criterion as part of its AI trading signal pipeline. Start getting signals that use this concept to find real opportunities.