ForexFin
ForexFin
The mathematically optimal slice of your bankroll to risk per trade.
At a 55% win rate and a 1.5 average R-multiple, full Kelly is 25.00% of bankroll — edge = 1.5 × 0.55 − 0.45 = +0.375 R per trade, and f* = 0.375 ÷ 1.5. Almost no one trades full Kelly; the standard is half-Kelly (12.50%) or quarter-Kelly (6.25%), which keep most of the long-run growth at a fraction of the drawdown. A negative edge returns a negative fraction — don't take the trade.
The Kelly criterion gives the bet size that maximizes the long-run growth rate of your bankroll given a known edge:
f* = (b·p − q) ÷ b where b = R-multiple, p = win rate, q = 1 − p
If the formula returns a negative number, your edge is negative — don't take the trade.
Full Kelly is mathematically optimal but assumes you know your true edge with certainty. In real trading you don't — your win rate and R-multiple are noisy estimates from a finite sample. Full Kelly with overestimated edge leads to violent drawdowns.
Half Kelly retains ~75% of the growth rate with roughly half the volatility. Quarter Kelly is common for discretionary traders and fund managers who want smoother equity curves.