Kelly's method is a strategy by which it is possible to calculate the optimal bet based on the odds of the bet, as well as its prediction. It is a widely used tool for extracting the ideal return on a bet, since betting more is taking unnecessary risks, and betting less would be wasting the return on the play.
Kelly's method is a mathematically based strategy for calculating the ideal return on a bet. Also known as the "Kelly Criterion", it is an approach based on formulas that have only been used for betting and investing over time.
For each bet that is made, we allocate a certain amount of funds from our portfolio. That amount is a small percentage of our total funds. What this method does is use mathematics to establish a relationship between the forecast and the odds to determine what percentage of our funds we should bet to achieve the perfect balance between risk and return.
Originally, the Kelly method was created in 1956 by John Kelly to analyze noise in long-distance telephone signals. Although successful in this sector, over time the same formula has been used successfully in the gambling industry, making it an established tool in the betting world.
To calculate the value of a bet using Kelly's method we only need to know two pieces of information: the bookmaker's odds (which we represent with a C) and the probability of the prediction being fulfilled, which is assigned to the P. It is important that the probability is accurate in order to obtain a precise result.
Thus, the formula used to apply Kelly's method is as follows:
% = (P x C - 1) / (C - 1)
In other words: multiplying the value of the odds by the probability that the forecast will be fulfilled and subtracting 1 from that value, and taking that total value and dividing it by the result of subtracting the odds of the bet minus one, we obtain what percentage of our funds is ideal to bet so as not to assume more risk than necessary, without compromising the profitability and potential of the bet.
But Kelly's method, while accurate, should not be followed blindly. There are a series of guidelines that it is advisable to follow so that our bets are in a perfect balance between potential and risk.
For example, limiting the maximum amount of each bet will allow us to avoid losing large amounts of money. Therefore, reducing the maximum bets is almost mandatory.
It should also be noted that one of the strengths of Kelly's method is that it is a valid long-term strategy. In other words, even if you think (with some reason) that you can bet more on a bet than Kelly's method, you really shouldn't do it. Therefore, discipline is important and it is not advisable to bet a higher percentage than that obtained after using the formula.
But keep in mind that this method only makes sense if you can predict the outcome of an event with even greater accuracy than bookmakers. The exact percentage of success probability must be known, as this system does not provide valuable results when trying to determine results in matches or good odds.
It is not reliable to use it for betting on several matches at the same time. The method can cause users to incur high losses if they do not use a conservative approach when using it, so to take full advantage of it, you have to be a very experienced bettor, but for someone with little experience is something out of reach and even reckless.
In summary: Kelly's method is a much more useful tool for experienced bettors. The inexperienced can use the trick of trying to control the method with not very high or limited stakes and see if their calculations are adequate, before scaling up the use of the method.
In essence, Kelly's method is a way to help you manage your money. It's a tool to avoid going over the top and overbetting on a short-odds bet and to help you make accurate plays. But, at the same time, it is a tool designed to take advantage of the full potential of the bets, avoiding losing that accumulation of small percentages that translates into a significant amount of money and that, in the long run, can be missed.
Considering that Kelly's method is a tool used mostly by experienced bettors, it is used more to try to achieve 100% economic return on the bet than as a wild card for beginners so that they do not overbet on a cheating bet.
Although extremely effective, there are two handicaps associated with the use of Kelly's method that you should be aware of. The first is the one discussed above: experience is required to accurately calculate the true odds of a bet. If accurate data is not used, the result will have too high a margin of error to be taken seriously.
On the other hand, Kelly's method can be too aggressive, which can cause any bettor to bet too high a percentage of their bankroll on a single bet. Therefore, it is highly recommended to reduce the maximum bets when using this method, a tip that we gave at the beginning and that is the best lifesaver. Although it is very effective, if the result of using Kelly's method is too high, we should "cap" the result and only apply between 50% and 60% of the total percentage obtained.
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