Kelly Criterion Calculator for Trading
Calculate your optimal trading position size with our free Kelly Criterion calculator. Enter your win rate and average win/loss to get Full, Half, and Quarter Kelly recommendations. We also include a simpler fixed-percentage position size calculator below.
What Is the Kelly Criterion?
The Kelly Criterion is a mathematical formula (f* = (bp - q) / b) that calculates the optimal percentage of your trading capital to risk per trade based on your win rate and reward-to-risk ratio. Developed by John Kelly Jr. at Bell Labs in 1956, it is used by traders and investors to maximize long-term portfolio growth while minimizing risk of ruin.
Why Position Sizing Matters in Trading
Position sizing is the mathematical process of determining exactly how many shares or contracts to trade based on your account size and risk tolerance. Unlike random guessing, proper position sizing ensures that a losing streak (drawdown) never destroys your trading capital, allowing you to stay in the game long enough for your edge to play out.
Kelly Criterion Calculator (Trading Position Sizing)
Use this calculator to find your mathematically optimal position size based on your trading strategy's win rate and reward/risk ratio. The Kelly Criterion was developed by John Kelly Jr. at Bell Labs in 1956 and is used by professional gamblers, hedge funds, and institutional traders worldwide.
Example: Kelly Position Sizing for a Momentum Strategy
Understanding Kelly Fractions
The Problem with Full Kelly
Full Kelly (15.4%) grows fastest but can drop your account 50-70% during losing streaks. Most traders can't stomach that.
Your backtest stats are estimates, not guarantees. Real trading often differs from backtests.
The Solution: Use a Fraction
Half Kelly (7.7%): ~75% of growth, ~50% less volatility
Quarter Kelly (3.9%): ~50% of growth, much smoother ride
Eighth Kelly (1.9%): Conservative choice for beginners
Skip the math: BacktestBase automatically calculates Kelly from your TradingView backtest—just upload and get your optimal position size instantly.
Stock Position Size Calculator (Fixed % Risk)
This simpler calculator lets you size positions using a fixed percentage of your account—no Kelly math required. The calculator follows professional risk management standards.
How to Calculate Your Risk Per Trade (Step-by-Step)
Determine Your Risk Tolerance
Start with your experience level and psychological comfort with losses:
- Beginner: 0.5-1% (focus on learning, not profits)
- Intermediate: 1-2% (proven strategy, consistent execution)
- Advanced: 2-3% (extensive backtesting, emotional control)
Calculate Your Risk Amount
Multiply your account balance by your risk percentage:
Determine Your Stop Loss
Your stop loss should be based on technical analysis, not your desired risk amount:
- Support/resistance levels
- Moving average levels
- Volatility-based (ATR) levels
- Pattern-based levels (trend lines, channels)
Calculate Position Size
Divide your risk amount by your stop loss distance:
Why Are Manual Kelly Calculations So Problematic?
The Problem
The Solution
Kelly vs Fixed Percentage Risk Per Trade
Fixed Percentage (Classic/CFA Style)
The traditional method used by institutional money managers. Simple, consistent, and psychologically easier to follow. Backed by the Federal Reserve and CFA Institute.
Conservative: 0.5-1% per trade
Standard: 1-2% per trade (industry default)
Aggressive: 2-3% per trade
Danger zone: 5%+ per trade
Best for: Traders who want simplicity and consistency without recalculating after every strategy change.
Kelly Criterion (Mathematical)
Calculates your optimal position size based on YOUR strategy's actual win rate and profit factor. More dynamic but mathematically justified.
Uses your real backtest data
Adjusts automatically to strategy performance
Can justify higher risk IF your edge is strong
Full Kelly often too volatile → use Half or Quarter Kelly
Best for: Traders with verified backtest data who want to maximize growth while understanding the volatility tradeoff.
Bottom line: Both methods manage risk effectively. Fixed percentages use industry-proven limits. Kelly uses math tailored to your edge. Choose what fits your trading style.
Case Study: Risk Management in Action
The Momentum Breakout Strategy: 18-Month Analysis
While 5% risk produced the highest returns (+239%), it also created a -61.5% drawdown that would psychologically destroy most traders. The 2% risk level provided excellent returns (+95%) with a manageable -24.6% maximum drawdown - the optimal balance for most traders.
Manual Calculation vs Professional Analysis
Frequently Asked Questions
What is the Kelly Criterion in trading?
The Kelly Criterion is a mathematical formula developed by John Kelly Jr. at Bell Labs in 1956 that calculates the optimal percentage of your capital to risk on each trade. The formula uses your win rate and average win/loss ratio to maximize long-term geometric growth while minimizing the risk of ruin.
How do I calculate my Kelly percentage?
Use the formula: Kelly % = (W × R − L) / R, where W = win rate (as decimal), L = loss rate (1 − W), and R = reward/risk ratio (avg win ÷ avg loss).
Example: 55% win rate with 1.5:1 reward/risk → Kelly % = (0.55 × 1.5 − 0.45) / 1.5 = 25%. Most traders use Half Kelly (12.5%) or Quarter Kelly (6.25%) to reduce volatility.
What's the difference between Kelly and fixed-percentage position sizing?
Kelly Criterion dynamically adjusts your position size based on your strategy's edge—risking more when your win rate and reward/risk ratio are favorable, less when they're not.
Fixed-percentage (like the 2% rule) uses the same risk percentage regardless of your strategy's statistics. Kelly is mathematically optimal but more volatile; fixed-percentage is simpler and more conservative.
Is this Kelly Criterion calculator for trading or sports betting?
This calculator is designed for trading position sizing using win rate and average win/loss from your strategy. It is built for systematic traders, not sports betting. If you need odds-based betting Kelly, this tool is not for you.
What is the Kelly Criterion calculator?
The Kelly Criterion calculator determines optimal position size using the formula: Kelly % = W - [(1-W) / R], where W is your win rate and R is your win/loss ratio. It tells you what percentage of capital to risk per trade to maximize long-term growth.
Is Kelly Criterion good for trading?
Yes, but use fractional Kelly. Full Kelly maximizes growth but creates extreme volatility. Half Kelly captures approximately 75% of optimal growth with approximately 50% less drawdown. Most professional traders use Quarter to Half Kelly.
What does Kelly Criterion maximize?
The Kelly Criterion maximizes long-term growth rate, also called geometric wealth growth. It finds the position size that grows your account fastest over many trades. However, this comes with high volatility—which is why most traders use Half or Quarter Kelly for a smoother equity curve.
What is the CFA Institute rule for risk per trade?
The CFA Institute generally recommends that professional traders risk no more than 2% of their total capital on any single trade. This "2% Rule" is designed to protect portfolios from the "Point of Ruin" (mathematical bankruptcy) while allowing for consistent geometric growth.
How much should I risk per trade as a beginner?
Beginners should risk 0.5-1% per trade maximum. This allows you to make 100+ trades before losing 50% of your account, giving you time to learn and improve your strategy without destroying your capital.
Focus on developing consistent execution and emotional control rather than maximizing returns. You can increase risk percentage once you have 6+ months of profitable trading.
Should I risk 1% or 2% per trade?
2% is the professional standard for experienced traders with proven strategies. It provides excellent growth potential while maintaining reasonable drawdown levels (-20 to -30% max).
1% is better if you:
- • Have a lower win rate strategy (<45%)
- • Are still developing emotional control
- • Want more conservative growth
- • Have limited trading capital (<$25,000)
What if I have a losing streak?
Losing streaks are mathematically inevitable. With proper 2% risk management:
- • 10 losses: -18.3% drawdown
- • 15 losses: -26.0% drawdown
- • 20 losses: -33.0% drawdown
Never increase risk during losing streaks. Maintain discipline and trust your backtested strategy. Consider reducing risk temporarily if drawdown exceeds -25%.
How do I calculate position size?
Use this simple formula:
Use our calculator above for instant position sizing with any values.
What's the Kelly Criterion and should I use it?
The Kelly Criterion is a mathematical formula that calculates the optimal bet size to maximize long-term growth. For most trading strategies, it suggests 2-4% risk per trade.
Pros: Mathematically optimal growth, accounts for win rate and profit factor
Cons: Creates high volatility, assumes perfect execution, ignores emotional factors
Recommendation: Use 25-50% of Kelly for more stable returns. If Kelly suggests 4%, risk 1-2% instead.
Can I risk more if I have a high win rate?
No, never exceed 3% regardless of win rate. High win rate strategies often have large occasional losses that can destroy accounts quickly.
Example: A 80% win rate strategy with 1:4 risk/reward still has 20% losing trades. 5 consecutive losses (1% probability) would lose 20% of your account at 4% risk per trade.
Better approach: Use consistent 2% risk and let the high win rate generate steady, reliable returns with lower volatility.
Glossary of Terms
- Position Size
- The number of shares, contracts, or lots traded in a single position, calculated based on account size and risk tolerance.
- Risk Per Trade
- The percentage of total account equity risked on any single trade. Professional traders typically risk 1-2% per trade.
- Kelly Criterion
- A mathematical formula that calculates the optimal position size to maximize long-term portfolio growth based on win rate and reward-to-risk ratio.
- Drawdown
- The peak-to-trough decline in account value during a losing period, expressed as a percentage of the peak value.
- Stop Loss
- A predetermined price level at which a losing trade is automatically closed to limit losses and define maximum risk per trade.
- Risk of Ruin
- The probability of losing a significant portion of trading capital (typically 50% or more) due to a series of losing trades.
- Win Rate
- The percentage of trades that result in a profit. A 60% win rate means 6 out of 10 trades are profitable.
- Reward-to-Risk Ratio
- The ratio of potential profit to potential loss on a trade. A 2:1 ratio means risking $100 to potentially gain $200.
Related Risk Management Topics
Ready to Analyze Your Trading Strategy Risk?
Upload your TradingView backtest results to BacktestBase and get professional risk analysis, Monte Carlo stress testing, and optimal position sizing recommendations based on your actual strategy performance.
BacktestBase is an educational and analytical tool only. Past performance does not guarantee future results. Position sizing recommendations are general guidelines and must be adapted to your specific trading situation. This is not financial advice.