Money Management with Kelly %

Money Management System can answer following questions:-

• How much money do we put in each stock? 
• When do we buy or sell those stocks?

How to get Kelly %?

• Access your last 50-60 trades.
• Calculate
• Win Probability, W = Number of trades with +ve return  / Total number of trades
• Win/loss ratio, R =  Average gain of +Ve Trade / Average loss or -Ve  
• Kelly % = W – [(1 – W) / R]

How to Interprete Kelly %?

• Kelly % represents the size of the positions you should be taking. 
• It lets you know how much you should diversify.
• Regardless of what kelly %,  not to commit >= 20-25% of your capital to one equity.  Allocating any more than this is carries far more risk than most people should be taking. 

The Bottom Line

• It will help you to diversify your portfolio efficiently, but there are many things that it can't do.  
• It cannot pick winning stocks for you.
• It cannot ensure that you always make spectacular returns
• But, it can help you limit your losses and maximize your gains through efficient diversification.
• Also, there is always a certain amount of "luck" or randomness in the markets, which can alter your returns.  

References:-

• Money Management Using The Kelly Criterion By Justin Kuepper