Kelly Criterion

There are two basic components to the Kelly Criterion:

  1. Win probability - The probability that any given bet made will return a positive amount
  2. Loss probability and Edge % - The expected advantage over fair value divided by the probability of losing

These two factors put into Kelly's equation:
Kelly % = W – [(1 – W) / R]

W = Win probability
R = Profit/loss ratio
Kelly staking can be applied at different levels dependent on the algorithms volatility tolerance

The Frequency of bankroll turnover

The greater number of times the bankroll is turned over (assuming a positive odds edge on each bet and efficient stake sizing) the greater the expected profits