Back to path GUIDEBOOKFractional Kelly
UNIT 4

Fractional Kelly

Half- or quarter-Kelly reduces drawdown and sensitivity to bad estimates.

Fraction½ KellySmoother path
What it tells you

A practical sizing range below the theoretical full-Kelly fraction.

When it is useful
  • Edges are uncertain
  • Drawdown tolerance is limited
When it fails
  • Still depends on the same model
  • Does not fix hidden correlation
COMMON MISTAKE

Using full Kelly because the spreadsheet shows the highest median ending wealth.

Evidence note

Fractional sizing is a robustness choice, not a new source of edge.

60-SECOND CHEAT SHEET

Remember this.

  1. 1Start below full Kelly
  2. 2More uncertainty → smaller fraction
  3. 3Re-estimate after costs
NEXT ACTIVITYKelly With BrakesUse fractional Kelly as an uncertainty control.
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