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BETA   •   TUESDAY, JULY 23RD, 2019

Kelly

August 2 admin

Kelly system was developed by J.L. Kelly Jr. in 1956.  Also known as the Kelly criterion, Kelly strategy, Kelly formula, Kelly bet.  It’s widely used in the investment world notably by Warren Buffet and Billy Gross.  Same method can be applied to blackjack or any games of chance.  Arguably the more strategy and tactics you employ the higher probability of making a positive return.  Simply using the betting strategy will not net you a profit.  Therefore one must know how to card count.  It is a formula that maximizes your profits and guides your better management. The main requirement to getting the biggest profits is you must have the mathematical edge over the house. The only way to get a mathematical edge is to practice card counting. If you are not card counting, then the Kelly betting system is irrelevant.

The Kelly formula is used to determine what fraction of the bankroll should be wagered based on different variables. Implementing this while card counting is very complicated and it takes much experience. You pretty much have to master card counting first before even beginning to comfortably implement the Kelly method.  The formula is shown below:

Where:

  • f* = fraction of bankroll to wager

  • b = is the odds received on the wager, such as “3 to 2” odds (where b = 3 here)

  • p = probability of winning (example: this number is 0.75 for a 75% probability)

  • q = probability of losing, equal to 1 – p (example: q = 1-0.75 = 0.25)

Just find the variables b, p, and q. Then “plug” these numbers in place of the variables in the equation above and solve for f*. The fraction being found will maximize the money being won when using card counting. The number you are looking for is the probability of winning, which is extremely complicated to find. It’s the actual edge that you have over the casino and this is always changing as the count changes. Although if you are one fine player who is good at math and you can find the edge, then the Kelly formula will maximize your profits.

The drawback is that very few people can calculate all these odds and probability in a casino environment with the rapid succession of cards being dealt, rotating players, interruptions  etc. However if calculated perfectly the player gains just over a 9% edge against the house which is astounding.  On the flipside there’s only a 33% chance of lose half your bankroll before doubling it.  

 
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