Understanding Kelly's formula with a picture overturns your investment cognition Why are top gamblers never all in? Chives usually only consider "rising" or "falling". Kelly's formula tells us that we need to take into account these factors: the probability of rising, the extent of the rising space, the probability of falling, and the extent of the falling space, and then calculate the position. First, let's talk about the core of Kelly's formula. Investment is probability theory: Don't be greedy: Even if the winning rate is high, you can't just "throw a shuttlecock", otherwise you may lose everything in one attempt. Don't be conservative: If the opportunity is good, make more bets appropriately to earn more. Dynamic adjustment: According to the current changes in funds, when there is more money, bet more, and when there is less money, bet less. Good opportunities require heavy bets, but enough capital must be saved to withstand bad luck The difference between buying stocks/BTC and gambling is that if you lose, you only lose a portion, not all of it (unless the stock/coin price drops to 0). In this scenario, Kelly's formula is: f = p/l - q/g of which F is the optimal proportion of investment amount (position) P is the probability of price increase (win rate) Q is the probability of price decline (q=1-p) G is the magnitude of price increase (upward space) L is the magnitude of price decline (downward space) When someone tells you that you should take a shuttlecock, remember to use Kelly's formula to calculate the optimal position. The Kelly formula is like a 'smart fund allocator', helping you decide how much capital to invest in each investment or gamble, maximizing long-term returns while avoiding bankruptcy risks. precautions Relying on accurate prediction: If you overestimate the win rate or odds, the Kelly formula will trick you. Avoid extreme situations: for example, if the formula suggests betting more than 100%, it indicates that this is a "trap" (there is no such thing as a guaranteed profit in reality). Actual discount: Many people use "half Kelly" (bet half of the suggested ratio) to further reduce risk. One sentence summary Kelly's formula teaches you - "Good opportunities require heavy bets, but you need to save enough capital to withstand bad luck