Kelly Criterion
Kelly Criterion will tell you exactly what percentage of your bankroll you should bet each time. However, this strategy can be risky if you haven’t got a proven ability to recognise value. Kelly is all about accurately judging the probability of a given outcome. The whole idea behind this bankroll management strategy is to maximise the profits when you can spot odds that are better than they should be.
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Kelly Criterion explained
The first step is to evaluate the probabilities of the outcomes from a betting market. Pros develop their own models for that, and you should start working on it yourself. The result of that should ideally be a combination of stats and team news, but some think that the latter isn’t required.After you’ve estimated the chances of winning it’s time to confront the values with the betting odds offered by the bookies. If the odds offered by accumulator bets are better than expected, indicating that you have an edge on them, it’s time to apply the Kelly Staking Formula to determine the stake for the respective bet:
Kelly Stake = [(Estimated Probability x Odds) – 1] / (Odds – 1)
Make sure to convert all data to decimal format before calculating! The result will be a decimal indicator which represents the percentage of your current bankroll you should be staking on the respective bet.
Kelly Criterion Example
You’ve estimated that Manchester United has 60% chances of winning (0.6 being its decimal equivalent) a Premier League match and the odds offered by an online sportsbook for their win are standing at 2.00.
The calculation would be: [(0.6 x 2.00) – 1] / (2.00 – 1) = (1.2 – 1) / 1 = 0.2 / 1 = 0.2
Now, by multiplying the outcome by 100 we will reveal it’s percentage value; therefore we’d conclude that the Kelly Criterion is indicating that our bet size in this football betting scenario should be 20% of our bankroll.
Hints: The whole idea with Kelly Criterion is that the more value you find in a bet, the more you will wager and that will generate profit in the long run. Because sometimes the differences between estimated odds and bookies odds can be quite dramatic, most pro punters prefer to use “Fractional Kelly”, which is a much safer alternative. All you have to do to use the prudent version of the money management betting strategy is to multiply the result of the formula with 0.25 each time (or divide it by four), to bet only a fraction of the initially indicated stake.
Some say that John Larry Kelly Junior’s formula is the best sports betting strategy in the long run, as long as the punter develops a predictive model that enables him to evaluate the chances of winning correctly. The problem with that is that the whole success relies on the quality of the betting tips, hence why inexperienced sports bettors shouldn’t go down this route before developing a proven betting model.