Kelly criterion

The Kelly criterion is the risk per trade that grows an account fastest in the long run, worked out as win rate − loss rate ÷ payoff. At a 40% win rate and a 2:1 payoff it is 10% a trade. Many traders use a quarter of it or less, because full Kelly brings deep drawdowns.

Kelly assumes you know your true win rate and payoff exactly. Real strategies only estimate them, and betting full Kelly on an overestimate loses money. Fractional Kelly keeps most of the growth with far smaller drawdowns.