The Kelly Criterion is a mathematical formula that helps sports bettors determine the optimal size of their bets based on their edge in a given wager. The formula takes into account the size of the bettor’s bankroll and the probability of winning the bet. By using the Kelly Criterion, bettors can maximize their potential return while minimizing their risk of ruin.
The Kelly Criterion formula is as follows:
Where:
To calculate the optimal bet size using the Kelly Criterion, bettors must first determine their edge in a given wager. This can be done by comparing the odds offered by the sportsbook to the bettor’s own assessment of the likelihood of the outcome occurring. If the bettor believes that a given outcome has a 60% chance of occurring, but the sportsbook is offering odds that imply a probability of 50%, then the bettor has a 10% edge.
Once the edge has been determined, the Kelly Criterion formula can be used to calculate the optimal bet size. For example, if a bettor has a $1,000 bankroll and a 10% edge in a given wager with odds of 2.0 (even money), the Kelly Criterion formula would produce the following result:
f = (0.10 x 2.0 – 0.90) / 2.0
f = 0.05 or 5% of the bankroll
The Kelly Criterion is a powerful tool for sports bettors who want to manage their bankroll effectively. By using the formula to determine the optimal size of their bets, bettors can avoid overbetting or underbetting, both of which can lead to long-term losses.
One of the key benefits of using the Kelly Criterion for bankroll management is that it allows bettors to adjust their bet sizes based on their confidence in a given wager. If a bettor has a high level of confidence in a particular bet, they can increase their bet size according to the Kelly Criterion formula. Conversely, if a bettor is less confident in a bet, they can decrease their bet size accordingly. This helps to ensure that bettors are making the most of their bankroll without taking on unnecessary risk.
Moreover, the Kelly Criterion can help bettors avoid chasing losses. When bettors suffer a losing streak, they may be tempted to increase their bet sizes in an attempt to recoup their losses. However, this can lead to even greater losses and eventually bankruptcy. The Kelly Criterion provides a logical framework for determining the optimal bet size, based on objective data and probabilities rather than emotions or past results.
Set a budget.
Before starting your sports betting activities, determine how much money you can afford to risk. This will help you set a budget and stick to it, reducing your risk of going broke.
Determine your edge.
Calculate your edge in a given wager by comparing the odds offered by the sportsbook to your own assessment of the likelihood of the outcome occurring.
Use the Kelly Criterion formula.
Once you've determined your edge, use the Kelly Criterion formula to calculate the optimal bet size.
Adjust your bet sizes.
Adjust your bet sizes based on your confidence in a given wager and your own risk tolerance.
Use the Kelly Criterion in conjunction with other betting strategies.
The Kelly Criterion is not a one-size-fits-all solution. It should be used in conjunction with other betting strategies and adapted to fit your individual goals and risk tolerance.
Using the Kelly Criterion for bankroll management is a powerful tool for sports bettors who want to maximize their potential returns while minimizing their risk of ruin. By determining the optimal size of their bets based on their edge in a given wager, bettors can avoid overbetting or underbetting and make more informed betting decisions.
Remember to set a budget, determine your edge, use the Kelly Criterion formula, adjust your bet sizes, and use the Kelly Criterion in conjunction with other betting strategies. With practice and experience, you can use the Kelly Criterion to become a more successful sports bettor and manage your bankroll effectively.
The Kelly Criterion formula is as follows: f = (bp – q) / b. Where f = the fraction of the bankroll to wager, b = the odds received on the bet, p = the probability of winning the bet, and q = the probability of losing the bet (1 – p).