## The Kelly Criterion (Advanced)

For experienced traders with tracked data:

**Kelly % = (Win Rate × Avg Win) – (Loss Rate × Avg Loss) ÷ Avg Win**

Example:
– Win rate: 55%
– Avg win: $200
– Avg loss: $100
– Kelly % = (0.55 × 200) – (0.45 × 100) ÷ 200 = 32.5%

**Never use full Kelly.** It’s too aggressive. Use “fractional Kelly” — 1/4 to 1/2 of the Kelly percentage.

In this example: 8-16% of account per trade (instead of 32.5%).

## The Position Size Checklist

Before every trade:
– [ ] Account risk % calculated (1-2%)
– [ ] Stop loss placed at invalidation point
– [ ] Position size = risk $ ÷ stop distance
– [ ] Total risk comfortable even if trade fails

**If any box isn’t checked, don’t take the trade.**

## Action Items

– [ ] Calculate your current position size for your next 3 setups
– [ ] If any is >2% account risk, reduce it
– [ ] Create a position size calculator spreadsheet

**Word Count:** ~650 words
**Reading Time:** 3 minutes
**Level:** Intermediate

*Next in series: The Portfolio Heat Map: Managing Multiple Positions →*

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Position sizing with geometric scales balancing risk and reward

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