Kelly criterion: Maximise your success with the right deployment strategy
Kelly criterion: Maximise your success with the right deployment strategy

Kelly criterion: Maximise your success with the right deployment strategy

In this comprehensive article, we will delve deep into the Kelly Criterion understand how it works, explore its applications and how it can dramatically increase your success.


What is the Kelly criterion?

Kelly criterion: Maximise your success with the right deployment strategy - March 27, 2024

The Kelly Criterion is a mathematical formula that aims to determine the optimum stake for maximum return.

The Kelly criterion is more than just a betting strategy. It is a powerful tool based on sound mathematical principles that aims to minimise risk while maximising potential profit. Here are some of the benefits that the Kelly Criterion offers:

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  • Maximisation of long-term profitBy determining the optimal stake, the Kelly criterion helps to maximise long-term profit.
  • Risk management: It takes into account the ratio of Odds and loss opportunities in order to minimise the risk.
  • Adaptability: The Kelly criterion adapts to different games or investment opportunities and offers a flexible Strategy.
  • Scientifically soundBased on probability theory and statistics, the Kelly criterion provides a solid basis for decisions.

These advantages make the Kelly criterion an indispensable tool for gamblers, investors and financial professionals around the world.


📊 Table: Important information at a glance

To give you a quick overview of the most important information on the Kelly criterion, you will find a handy Table:

TopicDescription
Area of applicationGambling, share trading, betting, casino games
DestinationMaximisation of long-term profit, risk minimisation
Main principleCalculation of the optimum Use based on probability of winning and payout ratio
Formulaf∗=bbp-q / b
Advantages- Maximisation of long-term profit <br> - Risk management <br> - Adaptability <br> - Scientifically sound
Application example- Roulette <br> - Blackjack <br> - Share trading <br> - Sports betting

This table provides a compact summary of the most important aspects of the Kelly criterion and its areas of application.


🎲 Kelly criterion in gambling

The Kelly criterion is widely used in the gambling sector, whether for casino games such as blackjack or sports betting. Here is an in-depth look at it:

The Kelly criterion in gambling is a way of determining the optimal stake that maximises the balance between risk and reward. It takes into account the probability of winning and the expected profit in order to determine the stake accurately.

What is the Kelly criterion in gambling?

The Kelly criterion is a mathematical formula that was developed to determine the optimum stake for betting. It takes into account the probability of winning and the expected profit in order to optimise the stake.

How does the Kelly criterion work in gambling?

The basis of the Kelly criterion in gambling is the Kelly formula:

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f∗=bbp-q/ b

Kelly criterion: Maximise your success with the right deployment strategy - March 27, 2024
  • f is the fraction of the capital that should be invested.
  • b is the odds of the bet (the ratio of winnings to stake).
  • p is the probability of winning.
  • q=1 - p is the probability of loss.

Example of the Kelly criterion in gambling:

Suppose we are playing blackjack and the probability of winning a hand is winis 0.6, while the odds are 2 to 1.

  • p=0,6
  • b=2

Let's use these values in the Kelly formula:

f∗=(0,6×2)-0,4 /2

=1,2-0,4 / 2

=0,8 /2

=0,4

Kelly criterion: Maximise your success with the right deployment strategy - March 27, 2024

This means that we should bet 40% of your available capital to maximise the expected profit.

Summary:

  • Take into account the probability of winning and the odds to determine the optimum stake.
  • Use the Kelly formula (f∗=bbp-q/b) for the calculation.
  • Adjust the stake accordingly to minimise the risk and maximise the winnings.

The Kelly Criterion in gambling is a powerful tool that can help you place your bets strategically and increase your long-term success.


♠️ Kelly criterion Blackjack

Blackjack is a game that is particularly suitable for applying the Kelly criterion, as the odds of winning and payout ratios are known.

Tips for applying the Kelly criterion in blackjack:

  1. Estimate the probability of winning based on your hand and the dealer's face-up card.
  2. Calculate the ratio of profit to loss.
  3. Use the Kelly formula to determine the optimum stake.

Example of the application of the Kelly criterion in blackjack:

Suppose we are playing blackjack and have a hand where the probability of winning is 0.6, while the odds are 2 to 1.

  • p=0,6
  • b=2

Let's use these values in the Kelly formula:

f∗=(0,6×2)-0,4 / 2

= 1,2-0,4 /2

= 0,8 / 2

=0,4

This means that the Kelly criterion recommends betting 40% of your available capital in order to maximise the expected profit.

Summary:

  • The Kelly criterion can also be applied to blackjack and helps to determine the optimum bet.
  • Take into account the probability of winning and the payout ratio to optimise the stake.
  • Adjust the stake accordingly to minimise the risk and maximise the winnings.

The Kelly Criterion offers a precise method to refine your blackjack strategy and improve your chances of winning.


📝 Kelly formula explanation

The Kelly formula was developed by the scientist John L. Kelly Jr. and is a mathematical tool for determining the optimum stake for bets or investments. It takes into account the probability of winning, the odds and the risk in order to find the best stake.

The Kelly formula in detail:

The Kelly formula is:

f∗=bbp-q

  • f∗ is the fraction of the capital that should be invested.
  • b is the odds of the bet (the ratio of winnings to stake).
  • p is the probability of winning.
  • q=1-p is the probability of loss.

How does the Kelly formula work?

The Kelly formula takes into account the ratio of profit to loss and the probability of winning to determine the optimum stake. By adjusting the stake according to the risk/reward ratio, the potential for long-term profits is maximised.

Example for the application of the Kelly formula:

Let's assume we place a bet with odds of 3 to 1 and a probability of winning of 0.4.

  • p=0,4
  • b=3

Let's use these values in the Kelly formula:

f∗=3(0,4×3)-0,6 / 3 =

= 1,2-0,6 / 3

= 0,6 / 3

=0,2

Kelly criterion: Maximise your success with the right deployment strategy - March 27, 2024

This means that we should bet 20% of your available capital to maximise the expected profit.

Summary:

  • The Kelly formula makes it possible to calculate the optimum stake for bets or investments.
  • It takes into account the ratio of profit to loss and the probability of profit.
  • The potential for long-term profits is maximised by adjusting the stake according to the risk.

The Kelly formula is a powerful tool that can help you make informed decisions and maximise your success.


🌟 Kelly criterion Example

A frequently used example of the Kelly criterion is the game of roulette. Suppose we have the opportunity to bet on a colour and receive twice the stake as a win if the colour appears.

Calculation of the optimum use with the Kelly criterion:

  1. Determine the probability of winning. In European roulette, the probability of a particular colour appearing is 18/37 (approx. 0.486).
  2. Determine the ratio of profit to loss (the odds). In this case, the odds are 2.
  3. Use the Kelly formula to calculate the optimum stake.

f∗=(0,486×2)-0,514 / 2

= 0,972-0,514 / 2

=0,458 / 2

= 0,229

Kelly criterion: Maximise your success with the right deployment strategy - March 27, 2024

This means that the Kelly criterion recommends placing about 22.9% of your available capital on this bet.

Summary:

  • The Kelly criterion can be applied to various games of chance, including roulette.
  • It helps to determine the optimum stake in order to maximise long-term profits.
  • By adjusting the stake according to the risk, we can optimise the chances of winning.

This example illustrates the practical application of the Kelly criterion and shows how it can help to increase your profits.


💡 Expert tips for applying the Kelly criterion

Finally, we give you some expert tips on how to use the Kelly criterion effectively:

  1. Thorough analysisPerform a detailed analysis of winning probabilities and payout ratios to obtain accurate results.
  2. Risk managementAlways consider the risk and adjust your stake accordingly to minimise losses.
  3. Maintain disciplineStick to the calculated stakes and don't let emotions get in the way of achieving consistent results.
  4. Regular reviewReview your strategy regularly and adapt it to changes in the probabilities of winning or payout ratios.
  5. DiversificationSpread your bets to further minimise risk and take advantage of various opportunities.

By following these expert tips, you can make the most of the Kelly criterion and maximise your chances of success.


🎯 Conclusion: Use the Kelly criterion for your success

The Kelly criterion is far more than just a betting strategy. It is a powerful tool based on mathematical principles that helps determine the optimal bet to maximise long-term profits and minimise risk. Whether you're gambling, trading stocks or anything else in life, the Kelly Criterion provides a precise method for making informed decisions and increasing your success.

By understanding the basic principles and application examples of the Kelly Criterion and following the expert tips, you can maximise your chances of winning and ensure long-term success. Use this powerful tool to achieve your goals and realise your dreams.


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