I got a question the other day about bet size and “should I be using Kelly Criterion”
to determine proper bet size?
Kelly Criterion is a formula for determining optimal bet size if you have an accurate understanding of what you “edge” is.
Here is the equation,
F = b x p – q / b
F = fraction of bankroll bet
b = odds paid on the wager (-110 = .91)
p = odds of winning (55% odds would be .55)
q = odds of losing (45% would be .45)
So assuming that you are a 55% handicapper against -110 pointspreads, by plugging the numbers into the equation you will see that you should be betting 5.5% of your bankroll on each play to fully maximize your edge.
This looks good on paper, but the problem that I have found over the years is that:
- Most people do not understand their true “edge”, or odds of winning.
- Many people are undercapitalized and are betting too big with unrealistic winning expectations.
I use a guide for determining your edge by documenting your last 1000 plays and calculating your win percentage. Over a 1000 game sample you should have a good understanding if your betting model is successful, and to what degree.
As far bankroll size goes lets start with someone who is interested in betting $100 a game. I like to start with a 2% rule regardless of edge. So a $100 bettor should have a bankroll of at least $5,000.
I’m unsure of my edge, how much should I bet?
To truly understand your long term edge, you have to be the sharpest of the sharp. A simple way to manage your bankroll effectively while continuing to develop your betting models is to flat bet with daily resizing.
So with your $5000 bankroll you would start the season betting $100 a game (2%). After each night’s games, based on if you won or lost for the day, simply recalculate 2% of your total bankroll to determine your bet size for the following day.
This strategy will keep you out of trouble in a losing streak and maximize profits when you are winning.
Three strategies to take from all this:
- If you truly know your long term betting edge, Kelly Criterion will help you maximize your profits.
- Flat betting with resizing can help minimize risk.
- As your betting models improve, and your edge becomes more apparent incorporating Kelly like principles will help maximize profits.
Stay disciplined in your approach and keep learning...Lets get em!
--Fazzer.