MPLouis Posted September 5, 2011 Share Posted September 5, 2011 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 :( Quote Link to comment Share on other sites More sharing options...
DM99 Posted September 5, 2011 Share Posted September 5, 2011 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. Quote Link to comment Share on other sites More sharing options...
MPLouis Posted September 5, 2011 Author Share Posted September 5, 2011 Re: An 'idiot's guide' to the Kelly Staking system? 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. Thanks for the reply DM99. Still too complex for my tired mind at the moment - but at least I think I'm starting to get a little grasp of the basics. Let me see if I've understanding the principle. Say I've found 2 bets that I think are good value, and I have £30 to bet. I think the second bet is twice as good value as the first. I would put £10 of my £30 on the first bet, and put £20 on the second bet. By doing this, in the long run I am allocating my funds according to where the best value is, and as long as my bets are good value, I will increase my returns. Is this along the right lines? Quote Link to comment Share on other sites More sharing options...
v-zero Posted September 5, 2011 Share Posted September 5, 2011 Re: An 'idiot's guide' to the Kelly Staking system? Thanks for the reply DM99. Still too complex for my tired mind at the moment - but at least I think I'm starting to get a little grasp of the basics. Let me see if I've understanding the principle. Say I've found 2 bets that I think are good value, and I have £30 to bet. I think the second bet is twice as good value as the first. I would put £10 of my £30 on the first bet, and put £20 on the second bet. By doing this, in the long run I am allocating my funds according to where the best value is, and as long as my bets are good value, I will increase my returns. Is this along the right lines? The problem with Kelly staking is that it cannot be easily extended to multiple bets, so unless you are placing one bet at a time and waiting for it to be settled, you are not betting according to the aim of the Kelly criterion. Quote Link to comment Share on other sites More sharing options...
DM99 Posted September 6, 2011 Share Posted September 6, 2011 Re: An 'idiot's guide' to the Kelly Staking system? Thanks for the reply DM99. Still too complex for my tired mind at the moment - but at least I think I'm starting to get a little grasp of the basics. Let me see if I've understanding the principle. Say I've found 2 bets that I think are good value, and I have £30 to bet. I think the second bet is twice as good value as the first. I would put £10 of my £30 on the first bet, and put £20 on the second bet. By doing this, in the long run I am allocating my funds according to where the best value is, and as long as my bets are good value, I will increase my returns. Is this along the right lines? Yes, assuming all other things constant, you will bet twice as much on the bet where your edge is twice as high. If you want to figure out a Kelly fraction, you need a) the odds offered by the bookie and b) what the true odds of winning are (this is never 100% known, you have to use experience or mathematical models to approximate this). If you give me those two numbers for both bets I will run them thru the Kelly formula, then you just split the £30 bet in proportion to the fraction. For me, this would be the best approach. Quote Link to comment Share on other sites More sharing options...
MPLouis Posted September 6, 2011 Author Share Posted September 6, 2011 Re: An 'idiot's guide' to the Kelly Staking system? Yes, assuming all other things constant, you will bet twice as much on the bet where your edge is twice as high. If you want to figure out a Kelly fraction, you need a) the odds offered by the bookie and b) what the true odds of winning are (this is never 100% known, you have to use experience or mathematical models to approximate this). If you give me those two numbers for both bets I will run them thru the Kelly formula, then you just split the £30 bet in proportion to the fraction. For me, this would be the best approach. Thanks DM99 :) Quote Link to comment Share on other sites More sharing options...
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