Kelly Criterion
Volume Profile Analysis glossary · Volume Profile Technicals
Definition
A formula for calculating the optimal fraction of capital to risk per trade to maximize long-run compound growth. Practical trading uses a fractional Kelly value.
Kelly Criterion in plain English
The Kelly Criterion answers one question: given that you have an edge, how big should each bet be to grow your money fastest over the long run? Bet too little and you leave growth on the table; bet too much and one bad streak wipes you out — Kelly finds the mathematical sweet spot in between. It's like deciding how hard to push a car: too gentle and you crawl, flooring it risks a crash, and there's an ideal steady pressure. Because the formula's "perfect" number is often too aggressive for real, uncertain markets, traders usually risk only a fraction of it (say, half-Kelly) to smooth out the ride.
Related Volume Profile Analysis terms
Volume Profile Analysis practice questions · Volume Profile Analysis flashcards · Volume Profile Analysis study guide