Classic Betting Strategies – The Kelly Criterion in Simple Terms

The Kelly Criterion was originally developed for industrial use, but gamblers recognized early on that it could be valuable for theoretically correct money management. While it is most suitable for horse racing, it is also of interest for blackjack card counters.

The Kelly Criterion tells the gambler the optimum amount to bet, as a percentage of his bankroll, to maximize the growth of his capital. It’s designed to work when the gambler has some kind of edge. For example, he can handicap the horses better than the general public or he is an expert card counter at blackjack.

Let’s look at what the Kelly Criterion does and doesn’t do. (1) It doesn’t guarantee you will make a profit. It does maximize your profits if you do win. (2) It also doesn’t guarantee you won’t lose money. It does minimize the chance that you will lose all your money. (3) It will not help you overcome the house edge in casino games. It’s designed to work when the gambler has an edge. 카지노사이트

The Kelly Criterion forces you to make larger bets as your bankroll grows bigger and smaller bets when your bankroll shrinks. In its simplest terms the Kelly Criterion reduces your betting down to this: you should bet a percentage of your bankroll equal to the edge you have at the game. When you raise the size of your bet based on the count swinging to your favor in a blackjack game, you’re putting the Kelly Criterion into action.

I promised to keep it simple, but we must look at the math involved. You need to determine two factors in order to size your bets the Kelly way. First, the odds you get on the wager. At the track this may be quoted as 6 to 1. So 6 would be the odds that you are getting. Second, you establish the probability that you are going to win (expressed as a decimal or fraction). Let’s assume you expect to win 60% (0.6) of the time. From that you can calculate the probability you will lose (it’s one minus the probability you will win, or 0.4 in this example) then divide it by the odds (that’s the 6 in the example in this paragraph). Now subtract to get the fraction of your bankroll to bet according to Kelly. That would be 0.6 minus 0.4/6 or 0.53. So if you had a $1,000 bankroll, you would bet $530. Notice as the odds drop (say 1 to 1) you would bet less of your bankroll. That’s the beauty of the system.

Here’s a roulette example. Looking at zero and double zero roulette, there are 18 red winners and 20 red losers (18 black, 0, and 00). The Kelly percentage for you to bet calculates as: 18/38 minus 20/38 divided by one (since your odds are 1 to 1 – the bet pays even money if you win). The math works out to – 2/38 or – 1/19, which tells you not to bet anything, since you can’t bet a negative amount of money.



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