Kelly Criterion

Kelly Criterion puts the sizing formula on the chart as a live reading. It measures win probability W and payoff ratio R from hypothetical trades - each the source change over the outcome horizon - and plots f* = W - (1 - W) / R, the Kelly criterion fraction, as a signed percentage. A second line tracks the fractional Kelly actually sized, a dashed level marks your planned risk per trade, and the dashboard adds sampled statistics, the ceiling check and the stop-based position-size translation.

How to Trade the Kelly Criterion?

• Above zero: a positive estimated edge, alerted on the cross; below zero Kelly sizing is zero - the Edge Lost alert covers the flip.
• Ceiling check: full Kelly is a ceiling, never a target - planned risk exceeding the current full Kelly fraction fires an alert, with a recovery alert for the way back.
• Position translation: Kelly sizes the fraction of equity at risk - position size is the risk amount divided by the stop distance, not a notional fraction.

Kelly Criterion Settings

• Estimator (default Trade outcomes (W & R)): also Continuous returns (mu / sigma^2) or Manual (enter W & R).
• Source (default close) and Outcome Horizon (Bars) (default 1): what one hypothetical trade is.
• Estimation Window (default 252): outcomes in the sample.
• Manual Win Rate % (default 55) and Manual Win/Loss Ratio (default 1.5): feed the Manual estimator.
• Fractional Multiplier (k) (default 0.5) and Fraction Cap % (default 500): the sized fraction and its clamp.
• Planned Risk Per Trade % (default 1.0): the dashed ceiling gauge.
• Account Equity (default 10000), Stop Distance (default ATR Multiple), ATR Length (default 14), Multiple (default 2), Stop % Of Price (default 2): the position-size translation.
• Show Dashboard (on, Top Right, Small); Mark Edge Sign Flips (off).

Frequently Asked Questions

How does the Kelly Criterion compare to Optimal F?

Optimal f searches the realized trade sequence for the fraction that would have compounded equity fastest, largest loss included; Kelly computes the optimum analytically from W and R. Both are ceilings estimated from limited samples.

Why size fractional Kelly rather than the full fraction?

Estimated edges decay, and oversizing past the true optimum is punished far more than undersizing beneath it. Half Kelly, the default k, keeps most of the theoretical growth rate while cutting the swings and drawdowns of full sizing substantially.

What if my strategy is not a one-bar trade on this chart?

Raise the Outcome Horizon toward your holding period, or enter W and R from your own trade log via the Manual estimator.