Kellycriterion
Mathematically optimal position size from your win-rate and average win/loss ratio. Ed Thorp used this on Wall Street; Buffett warns to apply it conservatively and fractionally.
Kelly explained
The Kelly formula gives the percentage of your capital you should optimally stake per trade to maximise geometric growth (long-run compounded return). Formula: f* = (bp − q) / b — where b = avg-win/avg-loss, p = win-rate, q = 1−p.
Warning: Full-Kelly is mathematically optimal but mentally brutal. Drawdowns are huge (theoretical 50% loss at 50% probability). Buffett and Ed Thorp therefore use Half-Kelly or less — you capture ~75% of the return with ~50% of the volatility.
If Kelly comes out negative: your edge isn't there. Don't take that setup, or recheck your win-rate / average amounts.