Kelly Quick Check
The Kelly formula asks one question: given how often a strategy wins and how big its wins are next to its losses, what share of the account would it be worth risking on one trade? Put in your own numbers and see the answer, along with the half and quarter versions most traders actually use.
Use at least 30 trades from your journal or a backtest. A rate you hope for is not a rate you have.
What the formula says to risk per trade
Before you use the number
- Kelly assumes your win rate and payoff are known and stay the same. Real ones drift, so a figure that is slightly too high costs far more than one that is slightly too low. That is why half or quarter Kelly is the usual choice.
- It sizes one trade at a time. Several open positions that move together are, for this purpose, one larger trade.
- A firm's daily loss limit or drawdown floor can make even half Kelly too large. The formula knows nothing about those rules.
Educational only, not financial advice. The result is arithmetic on the numbers you enter, not a recommendation to trade.
Turn it into a position size you can defend
The member Risk Management Tools take it from here: a dollar size for your account, a margin for being wrong about your own win rate, a check against prop-firm drawdown rules, and a stress test of how the account holds up through a losing run.