Adaptive Kelly Threshold System

 

1. Baseline Edge & Kelly Fraction

• Determine Your Edge:
  First, evaluate your estimated edge in the game. In blackjack, this might come from card counting or strategy variations; in 3-card poker, it could be from favorable rule sets or side bets.

• Kelly Fraction:
  Use the Kelly criterion to compute an ideal fraction of your bankroll to wager. The formula is:

  Kelly Fraction = (Edge / Odds)
  However, because full Kelly can be aggressive, you’ll only use a fraction (e.g., half-Kelly) as your base bet. This provides a mathematically sound starting point while reducing volatility.

2. Adaptive Bet Adjustment

• Recent Performance Factor:
  Track your performance over the last 5–10 hands. If you're on a win streak, slightly increase your bet beyond the base half-Kelly fraction (but never above a preset cap). If you're experiencing losses, reduce your bet size further below the base level.

• Dynamic Scaling:

  • Win Adjustment: For each consecutive win beyond a set threshold, add a small percentage (e.g., 5%) to your current bet, up to a maximum cap (say, no more than 25% of your bankroll).

  • Loss Adjustment: After a loss or a short losing streak, reduce your bet by a similar percentage (e.g., 5–10%) until you break even or begin to win again.

3. Threshold & Stop-Loss Controls

• Profit & Loss Thresholds:

  • Take-Profit: When your profit reaches a predetermined percentage (e.g., 10% above your initial bankroll), reset your bet sizing to the base level. This “lock-in” prevents over-aggression after a winning session.

  • Stop-Loss: If your bankroll falls below a specific threshold (e.g., 90% of your starting capital), reduce your bet sizes significantly or even pause play. This stops the system from chasing losses.

• Cumulative Risk Management:
  Incorporate a rolling evaluation of your net gain/loss over a session. If you’re below a certain cumulative threshold, you might revert to a very conservative bet—effectively “cooling off” until you regain stability.

4. Session Limits & Regular Resets

• Session Caps:
  Set a maximum number of hands or time limit per session. After reaching this limit, stop and review your performance. This avoids extended periods of unfavorable variance.

• Regular Resets:
  After each session, regardless of outcome, reassess your bankroll and adjust your base Kelly fraction as needed. This ensures that your bet sizing remains in line with your current financial situation.

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Why This System Is Safer and More Adaptive

• Mathematical Foundation:
  The Kelly criterion provides a theoretically optimal bet size when you have a positive edge. Using a conservative fraction (like half-Kelly) keeps you safer.

• Dynamic Adjustments:
  Unlike Martingale, which blindly doubles bets after a loss, this system adapts based on your recent performance. It increases bets only when you’re on a winning streak and scales back during losses.

• Risk Management:
  With built-in stop-loss and take-profit thresholds, you protect your bankroll from extreme swings.

• Session Discipline:
  Limiting sessions prevents you from overplaying and allows time for objective reassessment, reducing the influence of emotion on betting decisions.