Introduction to the Kelly Criterion and Betting18/05/2020 20:48
Introduction to the Kelly Criterion and Betting
When you are betting, the biggest mistake you can make is to go with your ‘gut feelings’. Those who rely on their impulses in the world of sport betting are not going to make much money at all. Instead, you want to go for those methods which give you a mathematical edge. One such method is the Kelly Criterion.
This page is not going to focus on what you should betting and when you should be betting. Instead, we are going to determine how much you should be betting. This is the ‘last stage’ of the process. Everything else i.e. choosing your team, the odds etc. will come beforehand.
The Kelly Criterion is one of the best methods in this regard. In fact, there are many people out there, some of the biggest bettors in the world, for instance, that will 100% rely on this method for generating profitable bets. The best part is that it is going to be simple to understand.
In order to succeed with the Kelly Criterion, you will need to understand this formula:
B: the decimal odds of the bet – 1
P: the chances of the bet being successful
Q: the probability of you failing
Let’s determine how you can make this formula work for you. Let’s assume that you are betting on a coin. The coin is slightly biased and there is a 52% chance that it will land on heads. The odds are 1.00. Let’s work our way through this formula:
P: 0.52 i.e. this is the chance that you have of winning.
Q: 1-0.52 = the chance of you failing. This will be 0.48.
B: 2-1 = 1. These are your decimal odds -1. Simple stuff.
Now, let’s put this formula into action:
(0.52×1 – 0.48) / 1 = 0.04
This means that you should have a recommended bet of 4%. If this number is positive, then you have the edge. This means that when your bet goes through, you will be able to see a boost in the amount of money that you are earning quite quickly. If the numbers end up negative, then that is a bet that you are not going to want to make at all. The odds are stacked against you. Sure, you may be able to earn a decent amount of cash if the bet goes through, but you really should not be taking the risk.
What does this % mean?
The percentage that you see above determines how much of your bank roll you should be putting up on the bet. One of the major benefits of the Kelly Criterion method is that it does not matter how much cash you have in your bank roll. The % will adapt. Sure, you will make some losses sometimes, but you will be able to make up that loss quite quickly if you continue to follow the technique and bet well.
When it comes to your winnings, you put them to one side and use them on your next bet. Let’s say, you bet $100. 4% of that would be $4. When you win from that $4, you will be able to apply it to the next bet you have. You don’t bet everything, you just let that bankroll slowly grow.
This is a better method than things such as ‘fixed stake’. This is because you do not constantly have to worry about a fixed bet, which can be risky from time to time, particularly when the amount of money that you have starts to dwindle.
Should you use this method?
This is a perfectly viable method for betting. In fact, it is perfectly advantageous over some of the more common methods such as Fibonacci and the Arbitrage method. This is because there is a lower amount of risk on your part. The only downside is that you are going to need to put a bit of effort into determining the likelihood of an event outcome occurring. It is also not going to lead to a massive amount of cash going into your bank roll. This is because you are going to be playing things safe.
As long as you put your money to one side when you win a bet, you are not going to be make any significant losses. In fact, just keep what your ‘established’ bankroll is at the start. Always work to that. You can withdraw any profits that you make from this betting method, and those profits are going to come through thick and fast if you do this properly. You should be winning the majority of bets that you make, because you know everything will be in your favour!
The major benefit over the Fibonacci method is that you are not going to be prone to those massive losses. The Fibonacci method means that you will constantly need to be upping the amount that you bet on your losing streaks. This means that you are going to be tapping out very quickly. Although, we must admit, the Fibonacci method is going to be a whole lot better for you in the world of sports betting over the Martingale method as the Martingale method will require you to constantly double your bet. There are some people out there who will use that method to try and win in the world of online gambling (away from 50% odds) and it does not really work all that well. You will eventually ‘tap out’. Your losses are going to be difficult to recover once you hit a big losing streak.
Yes. It is going to take some getting used to if you want to use the Kelly Criterion method. However, if you read other articles on this website, you will know that you will be able to make more money from sport and event betting the more effort that you put in. With this method you are going to need to calculate absolute everything.