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Is the Kelly Criterion the only viable option for your gambling stake?
Choosing between the Kelly Criterion and other staking options to calculate your betting stake. Find the best staking plan for your bankroll
Published on 31 October 2018
Updated on 31 October 2018
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The most argued and discussed question in football betting for semi-professional and amateur bettors alike is how to come up with a staking plan that delivers results in the long-term.
We all know that sports betting is difficult to predict with massive accuracy. There is an awful lot of ‘noise’ in the basic statistic of who wins or loses. Making any real sense out of results is often time-consuming, complex and never 100% accurate.
Because of that, knowing how good or bad your selection is, and how much of your cash stakes for a bet, is a very tricky proposition.
Most people who turn professional with their betting fail because, over the longer-term, they get their staking wrong; their selections might be excellent in terms of the simple winning or losing, but they over or under bet them, bleeding their bankroll out over time.
Bettors have several ways of thinking about their staking, each with their own strengths and weaknesses.
A lot of gamblers start their football staking plan from the sensible proposition that they need to track their betting over time in order to understand how well they are doing. This is often extended into the idea of betting to level stakes…
You stake the same amount on every bet, and then over time it is easier to understand how well you are doing
Anybody who has ever followed a tipster or bought some picks will be familiar with the way that they advise people to bet 0.5 or 1 point on a selection; one point equalling whatever your level stake is.
The disadvantage of this is obvious; your stakes are entirely unconnected to the probability of winning.
There is some attempt to vary the stakes in terms of betting several points, but this only has a very loose connection to probability.
The advantages are largely psychological; amateur bettors and some semi-professionals simply find this the easiest way of thinking about their staking plans, keeping a track of progress and knowing how much of their bankroll is going to be risked at any one time.
How do you some people combat unsuccessful staking?
A fashion in the United States in to quote a percentage of a bankroll to stake on any pick; this ranges generally between 0.5 and 3% depending on which sports betting consultant you intend to use.
The advantages of this approach are that it – initially – seems like a sensible way to bet, since only fractions of your bankroll are at risk on any one pick.
However, the drawback is that these fractions can compound if you start losing consistently, the same way as compounding has a very beneficial effect on your bankroll when you start winning consistently.
There are variations on these themes around, whereby people bet to level stakes when the odds are greater than some pre-determined value. This is an attempt to only bet when it is in their favour to do so, but it is a very cumbersome approach rather than simply working through the maths.
Most bettors will have heard of the Kelly Criterion, which is a mathematical formula for staking or investing, as described by the formula below:
[(Probability multiplied by odds) - 1] / (odds-1)
This equation delivers a simple output. if the output is positive, it is considered that the bettor has an ‘edge’ over the market and represents the percentage of the bankroll that you should stake, but if the output is negative, then you should not bet at all.
The vital component of this lies within probability theory, where someone trying to predict the outcome of a football match needs to compare their computed probability of the outcome with the implied probability of the outcome of the match found in the available odds.
If you think the probability is better than odds suggest, then you have an advantage bet.
There are generally quite heated debates amongst the football betting and soccer betting communities about just how useful the Kelly Criterion is for staking, for a range of reasons.
What are the problems with the Kelly Criterion?
The first is theoretical and based in the fact that the Kelly Criterion was derived for use in situations where the same bet will be used over and over, and where the edge that the bettor has is known very precisely.
For example, tossing a coin would be the same bet over and over, but the bettor would have no edge because it is a 50/50 chance of heads or tails; no stake to bet.
However, if you had a dodgy coin from a joke shop that came up heads 75% of the time, then you can conduct the same bet over and over, with the edge exactly quantified.
The problem is self-evident; football matches are nothing like tossing a coin. No two matches are ever the same, so you cannot have the same bet over and over.
Adding to above, the exact edge that the bettor has can never be known in an absolute sense, the best that can be done is to try and calculate the probability as best as possible, and hope that is better than the market.
Therefore, the Kelly Criterion cannot be used that precisely
If you are intending to bet professionally, then you will need to take some of your winnings for your profit and expenses.
The straight Kelly Criterion is a bit risky if you need to withdraw funds, as it can recommend putting large percentages of your available capital into a stake if it believes that you have a huge advantage, so many people use a set fraction of the percentage that the Kelly Criterion suggests betting.
Despite the fact that it is imperfect in the context of betting, the Kelly Criterion has a number of advantages in terms of helping the average punter get better at staking. The major thing is that it connects your stake to the odds and the probability in a systematic, if perhaps not perfect way, which makes significantly more sense than betting to any kind of fixed stake.
What are the benefits of the Kelly Criterion?
The advantage is in what the Kelly Criterion helps you avoid rather than the things that it does, and in this respect, there are two key problems that it solves.
The first issue is that, from a general perspective, it will help the amateur bettor avoid terrible bets; if you use the Kelly Criterion you will, at least, stop accepting the dreadful odds that some bookmakers offer on football bets.
Moreover, it will probably stop you over-staking on bets, which is the biggest sin that amateur bettors commit. If you were to ask the average punter with £100 to bet how much they intend to stake on gamble, it is unlikely it will be less than £10 or £20, regardless of the return.
There are a wide variety of psychological reasons for the way that people think about their stakes for a bet, but in general that is far too risky, and your bankroll could disappear on a single Saturday.
While betting a tiny fixed percentage is less risky, it also means that you miss the best opportunities. The Kelly Criterion will get you into the thought process of calibrating your stakes relative to how good that you think the odds are.
This is a tricky process to get right because the probability and edge is never known precisely, so you will have to get used to applying the Kelly Criterion in way that suits your betting style.
What are your best options for football staking?
In many ways, though, even if you do not actually use the formula above, getting into the discipline of matching your stake with the quality of the betting opportunity will put you head and shoulders above 95% of football bettors.
Ultimately, there is some work involved because you need to work out the probability of the outcome happening and then compare that to the odds, even if you do it by instinct rather than sitting down with a spreadsheet.
Taking the time to review your betting and staking options will protect and potentially even grow your bankroll over time.
The final point to make on staking is how to react to losses and wins in sequence. Mathematically, there is no reason to believe that wins and losses will be distributed evenly through time. There will be runs of wins and losses that this may seem like a meaningful trend but can just be explained by variance.
The most important discipline that a good bettor can learn, (assuming you are confident in your picks and probability), is to stick with the disciplined staking even where it seems like it is all going wrong.
Sticking with a staking plan, maintaining discipline in the stakes for the bets in the face of a succession of losers, is the bit that ruins even seemingly successful gamblers. You just have to keep focused on the long-term averages, maintain your betting discipline and take things steady.
Tags: algorithms, bankroll
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