Kelly fraction
The share of capital the Kelly formula would risk per trade, given the win rate and payoff.
Formula
Kelly % = W − (1 − W) ÷ R
Inputs
- W. Win rate, as a fraction.
- R. Payoff ratio.
How to read it
A theoretical maximum that assumes the past edge is exact; practitioners bet a fraction of it. Negative means no edge.
How to use it
An upper bound on position size, usually scaled down to a quarter or a half.
Limitations
Assumes the backtest's edge is exact and stable; overestimating it leads to oversized bets.
In Kereon
Strategies. From the backtest's own win rate and payoff ratio.
Also called: kelly, kelly %, kelly fraction.