It also depends on your personal risk preference and how willing you are to be down, even with the odds in your favor. For instance https://gopops.in/2021/04/13/stage-grow-profile-advice-tips-state-a-quote/ , if you have even odds with a 60% probability of winning, Kelly Criterion would tell you to gamble 20% of your payroll. But if you lose 3 times in a row (6.4% chance), you’d be down nearly 50%. It is a mathematical formula developed by John Kelly in 1956. He created it to help his fellow communications engineers and was not looking to find an edge in sports betting. Nonetheless, Kelly’s Criterion was used on the stock exchange before finally becoming a tool of the gambler.

## Kelly Criterion In Football Betting

This is the benefit of portfolio construction, which in this case is 5 to 10% of return. Some allocators elect to equal-weight investments given uncertainty regarding which investments will perform best. This strategy creates a basket of attractive investments that should profit regardless of which investments in the basket succeed. This method benefits from simplicity and recognizes the future is inherently uncertain. Drawbacks of the strategy include underweighting exceptional investments and overweighting marginal ideas.

## Importance Of Flat Stakes

On the other hand, I was interested in seeing a graph with the informative post predictive power of the optimal (f) with the next day returns. We will give some examples using the Kelly criterion for a one asset investment and a multiple asset portfolio. To make a long story short, the Kelly Criterion is named after the physicist John Kelly, an associate of Claude Shannon who is known as the founder of Information Theory. These two, along with the mathematician Ed Thorp developed the aptly named Kelly Criterion as a result of their efforts to beat the house and make consistent wins and subsequent wealth in blackjack and roulette.

## How To Use Kelly Criterion For Betting ?

The proportional staking method had a higher average bankroll as well as the highest maximum bankroll from the 500 simulations. But also suffered the lowest final bankroll after the simulations, nearly a full 200 less than the lowest for the level staking system. Also, keep in mind that in sports betting, luck is always a crucial factor, which can put an effect in your returns. The same system could be used by various punters and the results could not be the same. Do this by dividing the average gain of the positive trades by the average loss of the negative trades.

## What Is The Kelly Staking Strategy?

Just watch Sports Centre for an hour or two, and you’ll see what I mean. One person says Team A is going to crush Team B, the other one says no, no, I think Team B has a chance. Then they go back and forth explaining why they feel that way. One of the most important aspects of this strategy is to understand the probability of winning or losing any bet. We can come to a mathematical figure by calculating the risk versus reward, but everyone tends to have their own opinion on how likely on athlete or team is to beat another.

In the example above, the answer to the Kelly Criterion formula is a positive number. This tells you that you have identified a bet with value. If the answer to the equation had been a negative number, this indicates negative value.

The return from this policy turns out to have other stochastic dominance properties as well. We show that for the log-optimal, or optimal growth policy, this return tends to an exponential distribution. We compare the return from the optimal growth policy with the return from a policy that invests a constant amount in the risky stock. We show that for the case of a single risky investment, the constant investor’s expected return is twice that of the optimal growth policy.

In cells B5 and B7 we see variations of the Kelly Criterion; f/2 is a fractional Kelly bet of one half of the recommended amount. Yep, all these optimal and near-optimal strategies assume no “entertainment value” exists. The problem in sports is that models never give your exact or near-exact win probability. Thus a fundamental Kelly assumption is invalid so betting “fractional Kelly” is much more realistic. Anyone who is unfamiliar with how the Kelly Criterion can be used to determine optimal bet sizes should read Dominic Cortis’ article on how to use the Kelly Criterion for betting.

The only way to fairly compare the Kelly system to flat betting is to use a flat bet the same size as the average size of all the Kelly bets. That way, you’re risking the same total amount against the same overall won-lost results. No fair risking more money overall with one system than the other. Right here is precisely where Kelly promoters always screw up.