// TRADING TERMINOLOGY
What is Kelly Criterion?
A mathematical formula used to determine the optimal size of a series of bets to maximize long-term wealth.
In-Depth Explanation
In trading, it helps determine what percentage of your account to risk on a single trade based on your historical edge (win rate and average win/loss). Most traders use a "Fractional Kelly" (e.g., half-Kelly) to account for market uncertainty.
Practical Example
"Using the Kelly Criterion, a trader with a 55% win rate and 1:2 R:R might calculate an optimal risk of 3.5% per trade."
Related Terms
Master the language of risk
Knowing the terms is just the start. Learning how to apply them is where the edge is found.
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