Samuel Michael Gonzalez#100

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What is Kelly Criterion in forex position sizing?

The Kelly Criterion calculates optimal bet size to maximize long-term growth by balancing probability and payoff. Formula: f* = (p × b – q) / b, where p = win probability, q = loss probability, b = odds. Example: if your system wins 55% with 1:1 risk-reward, Kelly suggests ~10% risk per trade. Full Kelly is aggressive and can lead to big drawdowns, so traders use half- or quarter-Kelly for safety. Benefits: maximizes growth, mathematically sound. Risks: requires accurate probability estimates; small errors can cause overexposure. Institutions use Kelly in portfolio optimization, often blended with volatility targeting. Retail traders should treat it as guidance, not gospel. Applied conservatively, Kelly teaches the principle: risk sizing should match edge, not emotion.