看不懂的sol
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Understand the Kelly Criterion in One Diagram to Disrupt Your Investment Perception
Why do top gamblers never go All in?
Retail investors usually only consider “up” or “down”, but the Kelly Criterion tells us to take all these factors into account: the probability of an increase, how much room there is for an increase, the probability of a decrease, how much room there is for a decrease, and then calculate the position size.
First, let’s talk about the core of the Kelly Criterion, investing is about probability:
Don't be greedy: even with a high win rate, you can't “bet everything”, otherwise one failure could lead to total loss.
Don't be conservative: if the opportunity is good, you need to bet more to earn more.
Dynamic adjustment: based on current capital changes, bet more when you have more money, and less when you have less.
Good opportunities should be heavily bet on, but keep enough capital to withstand bad luck.
The difference between buying stocks/BTC and gambling is: if you lose, you only lose a part, and not everything (unless the stock/coin price drops to 0). In this scenario, the Kelly Criterion is:
f = p/l - q/g
Where
f is the optimal proportion of investment amount (position size)
p is the probability of price increase (win rate)
q is the probability of price decrease (q=1-p)
g is the magnitude of price increase (upside potential)
l is the magnitude of price decrease (downside potential)
When someone tells you to go all in, remember to pull out the Kelly Criterion and calculate what the optimal position size should be.
The Kelly Criterion is like a “smart fund allocator” that helps you decide how much principal to invest in each investment or gamble, maximizing long-term returns while avoiding bankruptcy risk.
Cautions
Reliance on accurate predictions: If you overestimate the win rate or odds, the Kelly Criterion can lead you astray.
Avoid extreme situations: For example, if the formula suggests betting over 100%, it indicates a “trap” (there is no guaranteed profit in reality).
Practicality can be discounted: Many people use “half Kelly” (betting half the suggested proportion) to further reduce risk.
In summary
The Kelly Criterion teaches you—“Good opportunities should be heavily bet on, but keep enough capital to withstand bad luck.”
Why do top gamblers never go All in?
Retail investors usually only consider “up” or “down”, but the Kelly Criterion tells us to take all these factors into account: the probability of an increase, how much room there is for an increase, the probability of a decrease, how much room there is for a decrease, and then calculate the position size.
First, let’s talk about the core of the Kelly Criterion, investing is about probability:
Don't be greedy: even with a high win rate, you can't “bet everything”, otherwise one failure could lead to total loss.
Don't be conservative: if the opportunity is good, you need to bet more to earn more.
Dynamic adjustment: based on current capital changes, bet more when you have more money, and less when you have less.
Good opportunities should be heavily bet on, but keep enough capital to withstand bad luck.
The difference between buying stocks/BTC and gambling is: if you lose, you only lose a part, and not everything (unless the stock/coin price drops to 0). In this scenario, the Kelly Criterion is:
f = p/l - q/g
Where
f is the optimal proportion of investment amount (position size)
p is the probability of price increase (win rate)
q is the probability of price decrease (q=1-p)
g is the magnitude of price increase (upside potential)
l is the magnitude of price decrease (downside potential)
When someone tells you to go all in, remember to pull out the Kelly Criterion and calculate what the optimal position size should be.
The Kelly Criterion is like a “smart fund allocator” that helps you decide how much principal to invest in each investment or gamble, maximizing long-term returns while avoiding bankruptcy risk.
Cautions
Reliance on accurate predictions: If you overestimate the win rate or odds, the Kelly Criterion can lead you astray.
Avoid extreme situations: For example, if the formula suggests betting over 100%, it indicates a “trap” (there is no guaranteed profit in reality).
Practicality can be discounted: Many people use “half Kelly” (betting half the suggested proportion) to further reduce risk.
In summary
The Kelly Criterion teaches you—“Good opportunities should be heavily bet on, but keep enough capital to withstand bad luck.”
Disclaimer: Includes third-party opinions. No financial advice. May include sponsored content. See T&Cs.
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