An 'idiot's guide' to the Kelly Staking system?

[MPLouis]

The Kelly Staking system has been recommended by several different sources. But the explanations all seem pretty theoretical and long-winded, including the wiki page - http://en.wikipedia.org/wiki/Kelly_criterion Has anyone found an 'idiot's guide' to Kelly? I get the impression that it isn't that complex, but the explanations certainly are :(

[DM99]

Re: An 'idiot's guide' to the Kelly Staking system?

The Kelly Staking system has been recommended by several different sources. But the explanations all seem pretty theoretical and long-winded, including the wiki page - http://en.wikipedia.org/wiki/Kelly_criterion Has anyone found an 'idiot's guide' to Kelly? I get the impression that it isn't that complex, but the explanations certainly are :(

The basics of Kelly Criterion is simple. The bare bones is that you bet the amount of your bank that is equal to your "edge". This is adjusted for strike rate since a lower winning % means you are more likely to go bust. Mathematically the best way to grow the bank is to maximise your geometric growth rate, and this is the Kelly fraction. For even money bets, the % bank you bet is equal to your edge. As an example, you can think about blackjack as being one of these even money games and you get an edge with card counting. I can't go through the maths here but the count is strongly related to your edge. At count +2, you have 0.5% edge, so you bet 0.5% of the bank. At count +4, you have 1.5% edge, so you bet 1.5% of the bank. For other betting, where you get odds "x to 1", the formula is in the Wikipedia link. You just need your win%, loss% (= 1 - win%), and odds to figure out your ideal fraction to bet. NOTE: you never know your exact win % in advance, so Kelly staking will probably cause you to bet too much! When in doubt, be very conservative, and use 1/2 or less of Kelly. The biggest disadvantage with Kelly is that you can end up betting very large amounts of the bankroll which can be extremely tough psychologically. If you use Kelly I recommend you bet 2/3 or 1/2 of Kelly fraction instead, which means you get ~60 - 80% of the theoretical max profit, but cut your risk of going bust dramatically.