How to use the Kelly Criterion in Betting

One of the most important strategies to manage your bankroll is the Kelly Criterion. It does not follow a fixed betting pattern or percentage. Instead, it instructs you🥂 to bet according to your estimation of value. The higher the value, the bigger the percentage of your bankroll you should bet.

Kelly Criterion Calculator

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What is the Kelly Criterion?

The Kelly Criterion is a formula that helps you work out how much you shoul𒉰d bet. It recommends that you should o💖nly bet if there is a difference between the true odds (your estimated odds) and the given odds (the bookie’s odds). Though it may seem complicated, the formula is actually very simple.

Kelly Criterion Formula for Sports Betting

The Kelly Criteria has several versions. Here is the simplest version for sports betting:

f* = [(b x p) – q] ÷ (b)

Kelly Criterion Football Example

You can easily use the Kelly Criterion to decide how much to bet on a football match. Let us say that Manchester United is set to play against Real Madrid for the final of the Champions League. The odds makers have set Real Madrid as a slight favourite, at odds of 1.82. In this case, there is no draw possible (We will bet on match winner, not result after 90 minutes). These odds imply a 55% chance of winning. However, based on your own analysis, you believe Real Madrid has a 65% chance of winning.
You have seen value, so you can now use the Kelly Criterion to decide how much of your bankroll to bet.

The Kelly Criterion implies you should bet 22.31% of your bankroll oꦫn Real Madrid.

Kelly Criterion Horse Racing example

The Kelly Criterion also works for horse race betting. Let us say that your horse (Let us call him Lucky Punte💧r) gets 4/1 odds (or 5.0 in decimals, or a 20% implied probability of winning) at the Cheltenham Hurdle. You believe, based on careful analysis, that Lucky Punter actually has a bigger chance of winning. You estimate the chances slightly higher, at 25%.

Using the Kelly Criterion, you can now work out how much of your bankroll to bet on Lucky Punter.

The Kelly Criterion implies you should bet 6.25% of your bankroll on Lucky Pꦅunter.

How to use the Kelly Criterion to decide how much of your bankroll to bet

As you can see, the Kelly Criterion does an effective job at telling you how much to bet. Sometimes, it can instruct you to bet an a൩mount that is much more that what you would like to bet intuitively. In that case, you can opt to use the Half Kelly or the Fractional Kelly.

Half Kelly

The Half Kelly is a more con🔜servative strategy. Simply work out the Full Kelly and divide by two.

Fractional Kelly

The Fractional Kelly lets you use any fraction of the full Kelly you want. Use a third, a fourth or a fifth, or whichever fraction best suits your betting strategy.

Combining with other staking strategies

You can easily combine the Fractional Kelly with any positive or negative staking strategy. That would mean you increase or decrease how much of a Full Kelly you bet, depending on your win/loss streak. Combine it with the Fibonacci Betting System, or Martingale System, for example.

When not to bet

When there is negative value, or the oddsmakers see the odds of an event more likely than you do, the Kelly Criterion suggests you should not bet. The formula will give you a negative number. Of course, that could mean that precisely the opposite outcome has more value, which is something 🐷you could cജonsider betting on.

Advantages and disadvantages of using the Kelly Criterion

The Keꦦlly Criterion has several advanta💟ges for the modern Punter, though it has its limitations.

Advantages

The Kelly Criterion has a proven track record, and is used by top investors and punters all over the world. Here are several advantages for punters.

Safeguard your bankroll

It helps you safeguard your bankroll, while taking just the right a🎶mount of risk. By increasing your wager and not simply betting the same amount every time, 𓄧you have a dynamic betting strategy.

Keep your greed in check

The system is easy to use, and can protect you from your own bullishness. Instead of betting the bank on what you believe is a ‘sure win’ (sure wins do not exist in most sports), you are forced to rely on a smart formula that limits how much of your bankroll you risk.

Know when not to bet

The Kelly Criterion easily lets you know when not to bet. If it throws up a negative number, then it is time to reconsider your bet 🧔or even place the opp♏osite bet.

Disadvantages

While the Kelly Criterion has many advantages, it has several drawbacks.

Based on your calculations

Whether or not the system works in the long term depends on your own skill at finding the right bets. If your estimations are better than the oddsmakers, it can be a great way to beat the bookies. If not, your wins will depend on luck.

A potentially aggressive strategy

The Kelly Criterion can potentially be a very aggressive strategy. It can easily instruct you to bet as much as 20% of your bankroll on a single bet. Most professional punters usually bet less than 5% of their bankroll per wager. Therefore, 💞only bet a larger percentage is you are very sure you have identified v💟alue.

History of the Kelly Criterion

The Kelly Criterion was originally developed by economist John Kelly, who was working at AT&T's Bell Laboratory. It was developed to analyse long distance signal noise issues. The method was published in 1956 as “A New Interpretation of Information Rate”. Soon after it was published, it became popular among big investors. , as well as legendary bond trader Bill Gross, all recommend the method. It helps them decide how much to invest in any given project.

The gambling community later realized its potential as an oౠptimal betting system for horseracing as well as other sports. It is a general money management system for financial investments as well as sports betting.

Kelly Criterion Experiment

The Kelly Criterion has been proven to work in several . This includes an experiment where players co♔uld bet on a coin that would land on head 60% of the time, for an even money bet. 28% of the players actually went bust, while only 21% of the players reached the maximum. By using the Kelly Criterion, and betting 20% of their total bankroll, players had a 94% chance of reaching the maximum.

ThePuntersPage Final Say

Your success as a punt😼er will depend on your choice of bets. However, as demonstrated by John Kelly, the size of your bets, relative to your bankroll, is very important.

Using Bankroll management strategies such as the Kelly Criterion will not guarantee spectacular returns. However, it will help you limit your losses, protect you from being too bullish and help you decide how much of your bankroll to wager on each bet. Read our article on Bankroll Management for more tips.