Glossary › optimal-growth formula
Trading glossary · advanced
optimal-growth formula
A maths formula that finds the bet size that would grow money fastest, if your numbers were exactly right.
The fuller meaning
The Kelly-style formula f = p − (1 − p) / b, where p is the win rate and b the average win divided by the average loss. At a 50% win rate and 2R it suggests risking 25% per trade, and overestimating the edge makes it worse; traders use half, a quarter or a fixed 0.5% to 2%.
optimal-growth formula, also called optimal growth, Kelly criterion.
Related words
at the money · backtest · backwardation · basis · call option · contango · data snooping · delta · edge · entry trigger