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Old 11-29-2007, 03:35 PM
HoldenFoldem HoldenFoldem is offline
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Join Date: Nov 2005
Location: BC, Canada
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Default Re: Online bankroll management

I just read an interesting book on cash management called: Fortune's formula by William Poundstone. It discusses many things, but the relevant topic is the 'Kelly Criterion" .

Kelly devised an optimal betting system, and it is discussed for several pages . Essentially, you always bet a percentage of your stake. ie 10%.

If you start with $100 and bet 10% and double up, then you have now got $110. Your next bet would be for 10% of $110 or $11. As yoiu hit hot streaks, the size of your wages goes up, maximizing your return.

If you lose, the size of your next wager goes down, minimizing your cold streaks. At no time is your total stake at risk, because yoiu never bet more than 10% of it.

I've have given just the bare bones here.

They also compare results using a martingale system (double up every hand you lose until even again); the Kelly system, and a fixed wager system. They show a chart of the results, and the Kelly system is by far the winner.

Later they compare "overbetting" and " underbetting" and again the Kelly system far exceeds the others.

Its a complex topic, and the book gets complex as well. Kelly gives a formula of G (max subscript)=R
G= growth rate of gambler's money
max subscript means we are talking about the maximu possible rate of return
R = the optimal return

The Kelly forumla says that you should wager this fraction of your bankroll on a favorable bet:

edge/odds

edge is how much you expect to win on average assuming you could make this wager over and over with the same probabilities . It is a fraction because the profit is alwways in proportion to how much you wager.
odds means the public or tote board odds. It measures the profit if you win. ie 8:1 on a horse race

i'm reading this from the book and typing it into this post. It just gets really complicated from here. I have given you the guts of the thing though. I hope this helps.


good luck out there.
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