Glossary / Risk
Kelly criterion
Definition
A formula for the mathematically growth-optimal bet size.
Why it matters
Full Kelly is far too volatile for discretionary trading. Most traders who use it at all trade a quarter or half Kelly.
Formula
Kelly % = Win% - (Loss% / Payoff ratio)
Example
With a 50% win rate and a 2:1 payoff, Kelly suggests risking 25% per trade. Almost everyone trades a quarter or an eighth of that, because full Kelly drawdowns exceed 50%.
How to track it in a journal
TradeStack calculates the core performance numbers — win rate, average win and loss, profit factor, expectancy, drawdown and consistency — automatically from imported trades, so kelly criterion stops being something you estimate and becomes something you read.
Related terms
R multiple
A trade result expressed as a multiple of the amount you risked.
Risk-reward ratio
The size of your planned target compared with the size of your stop.
Position sizing
Choosing how many shares, contracts or lots to trade based on your stop distance and risk budget.
Drawdown
The decline from a peak in your equity curve to the following trough.
Keep reading
Trading journal guides
Expectancy, profit factor, drawdown, backtesting and the PDT rule.
Free trading calculators
Position size, risk-reward, expectancy and options profit.
Expectancy calculator
Expected profit per trade from your own numbers.
Broker CSV export guides
Step-by-step exports for Tradovate, NinjaTrader, IBKR and more.
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