Why Fractional Kelly Beats Gut Feel
Position sizing eats edge. Even modest edges evaporate when stakes are emotional, not mathematical.
Speculators chronically overstake winners and chase losers. The math says you should be doing the opposite.
Full Kelly sizing, staking the percentage of bankroll equal to your edge divided by the odds, is mathematically optimal in the long run but emotionally intolerable in the short run. Drawdowns of 50%+ are common. Practitioners use fractional Kelly: stake one-quarter or one-half of full Kelly. You give up some long-run growth in exchange for sleeping at night.
A few rules of thumb that survive contact with reality: - If you cannot articulate an edge in one sentence, your edge is zero. Stake accordingly. - If a single loss would change your behavior on the next position, the position is too large. - Bankroll is what you have *set aside* for speculation. It is not your checking account.
ROW automatically flags positions over 10% of stated bankroll as 'large' and over 25% as 'oversized.' These are not arbitrary thresholds. They map to the points where fractional-Kelly logic breaks down for almost every realistic edge.