Kelly Criterion

Most of us find Kelly the hard way: betting too big on a good thing, watching variance take a bite, and wishing we'd had a rule.

The Kelly criterion sizes your stake by how much edge you actually have and the odds on offer. Bigger edge, bigger bet; thin edge, small bet. Done properly it grows a bankroll faster than flat staking over the long run, and it never tells you to risk everything.

The catch is it assumes you know your true edge, and almost nobody does. Overestimate it and full Kelly swings get brutal. That's why most people who use it bet a fraction, half or quarter Kelly, trading a little growth for a lot less heartburn.