Kelly criterion

Kelly criterion, mathematical technique relating to the long-term growth of capital which helps in managing money effectively. This system is also called the Kelly strategy, Kelly formula or Kelly bet.

where:

Kelly% =Percent of investor’s capital to put into a single trade

W=Historical win percentage of the trading system

R=Trader’s historical win/loss ratio

The mathematical formula determines what percentage of bankroll/capital should be used in each bet/trade to maximize long-term growth.