Kelly Criterion Position Sizing

The Kelly criterion is a capital management method that determines the optimal position size based on probability theory and expected value theory. This method calculates the theoretically optimal position proportion by considering win rate and reward-risk ratio.

Calculation Principle

The Kelly criterion calculates the optimal position proportion using the following formula:

f* = (p × b - q) / b

Where:

• f*: Optimal position proportion
• p: Win rate
• q: Loss rate (1-p)
• b: Reward-risk ratio

Parameter Description

• win_rate: Win rate, default 0.6 (60%)
• reward_ratio: Reward-risk ratio, default 1.5

Usage Recommendations

1. The win rate is recommended to be based on historical data statistics
2. The reward-risk ratio should be set according to strategy characteristics
3. Usually, use half-Kelly or quarter-Kelly to reduce risk
4. Regularly evaluate and adjust parameters