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When we have a trading system, how to balance the relationship between risk and return? For a transaction, how big a position should we place to control the risk while maximizing the profit? In 10 minutes, I will explain the Kelly formula to you, so that you can know how to operate and the detailed steps. First of all, we need to understand what the Kelly formula is used for. The essence of trading is not to judge the direction, but to obtain profits by taking risks. Our goal is to take smaller risks and obtain higher returns. The Kelly formula is to solve this problem. The Kelly formula is a mathematical formula for calculating the betting ratio in gambling and investment, which is to find the best balance between the risk and profit of your strategy. The Kelly formula was originally designed to solve the problem of casino betting. Later, it was also widely used in trading and investment in stocks, futures, foreign exchange and other markets. Its calculation formula is F=BP-Q divided by B, where F represents the proportion of each bet. B represents the odds or the profit and loss ratio, P represents the probability of profit, and Q represents the probability of loss. Let's take a simple example. For example, if you flip a coin and it lands on the front, you win 1.5 yuan, and if it lands on the back, you lose 1 yuan. If you have 100 yuan now, how much should you bet each time to ensure the safety of your capital and get higher returns? According to the Kelly formula, if you win, you earn 1.5 yuan, and if you lose, you lose 100 million yuan. Then the odds B are equal to 1.5. If the front wins, the probability of winning P is equal to 50%. Similarly, the probability of losing Q is also 50%. Substitute all the above values ​​into the Kelly formula. The betting ratio is equal to the odds of 1.5 times the probability of winning 50% minus the probability of losing 50% divided by the odds of 1.5 to get 16.6%. If you have 100 yuan now, then 16.6 yuan is the best bet amount. If you keep winning and now have 200 yuan, then 200×16.6% equals 33.3. After a brief introduction to the Kai rate formula, many people may have questions. For games like coin tossing, we can know the probability of profit and loss in advance, and we can know the odds through the rules of the game. But when we face a trading opportunity,