How this number is made
The Kelly fraction is the share of the bankroll that maximizes long-run growth if the win rate and the payoff never change. Full Kelly swings hard. Half Kelly is the same edge with a smaller bet. If the edge is zero or negative, the fraction is zero: the formula says do not bet. A trading edge estimated from a short sample is not this certain.
- Win and loss are the average dollars, or the average R, of each outcome. Use the same unit for both.
- Win rate is how often the win happens, not a feeling about the next trade.
Formula
Odds = average win ÷ average loss. Kelly = win rate − (1 − win rate) ÷ odds. Half Kelly is half of that.
Worked example
With the figures already in the form, full kelly is 10.0%.
Questions
Should I bet the full fraction?
Usually no. The fraction assumes you know the edge. Half Kelly gives up some growth and cuts the drawdown.
What if I cannot lose the whole stake?
Then this is the wrong size. Kelly here treats the average loss as the amount at risk on the bet.