# Kelly Risk management | High-logical-Best Possible-risk to take so that we can quickly appreciate or depreciate the account balance

The Kelly Formula also called the Kelly Criterion, is a very different

risk management method. It is designed to maximize profit but takes much

larger risks than the fixed fractional method.

Kelly grows profits geometrically rather than arithmetically.

***A geometric curve also means that the returns on a portfolio of trades are not even. That means that the returns on wins are bigger than losses.

Here is the formula for determining how much to bet:

F = (bp − q)/b

Where F is the percentage of the current bankroll to wager,

b is the average winner(in base currency) divided by the average loser(in base currency),

p is the probability of winning, which is the number of winners divided by the total number of trades,

q is the probability of losing, which is simply 1 – p.

So let’s say that we make 100 pips on average when we win and lose 50 pips when we lose. The ratio is 2:1 so we would put in 2 for the b in the formula. P is the percent of total trades that are winners and q is simply 1 minus p

The source of this information is in a book written by Mr Courtney D Smith:

The link to it is here:

Amazon.com: How to Make a Living Trading Foreign Exchange: A Guaranteed Income for Life (Wiley Trading Book 413) eBook : Smith, Courtney: Kindle Store

Just wanted to leave this here attributing the technique rediscovered by Courtney Sir