Bankroll Management in Blackjack: Applying the Kelly Criterion for Optimal Growth

Not many casino games give players the chance to influence the outcome of each round. While there are plenty of strategies that you can use for those casino games, the Kelly Criterion strategy is not designed for those games. Blackjack is the perfect example of a game in which you can change the house edge and utilize the Kelly Criterion to optimize your bankroll.

It is quite an advanced strategy, but it only takes a few minutes to learn how the Kelly Criterion strategy works, and from there you can use it with your blackjack strategy to improve your chances of turning a profit. The strategy is also designed for sports betting and any games in which you can gain a small edge over the house. It is perfectly suited for blackjack players who already have a strategy in place to reduce the house edge to a minimum. Who is the Kelly Criterion Strategy for? If you use a basic blackjack strategy or even have a beginner's knowledge of counting cards, then you can implement the basics of this strategy to increase your advantage.

What is the Kelly Criterion Strategy

The Kelly Criterion is a strategy that solely focuses on your bankroll and shows you how much you should stake. In sports betting, the theory is that you look for bets that have a favorable risk to reward balance. Using the Kelly strategy, you will know exactly how much to stake on that bet. You have to estimate the real chances of winning (Real Value, as opposed to Implied Value), and enter the numbers into a Kelly Criterion Calculator. The calculator will then tell you how much of your bankroll you should stake, and if the number comes out negative – this means the bet is not worth placing.

Ideally, this strategy will help you maximize your bankroll's growth potential and also protect you from making any costly errors. It does not guarantee you will win every time. But what it does do is tell you when to go aggressive on a bet, and when to take more caution – the perfect tool for expert gamers.

Kelly Criterion Formula

The mathematical formula calculates how much you must stake for each bet, based on the probability of winning, how much you can win, and how much you have in your bankroll. House edge plays an important part in how you will stake your bet. Here is the complete formula:

f = [(b x p) – q] / b

• f = the fraction of your bankroll that you must wager
• b = the odds offered on the wager – in Blackjack, this is 1:1
• p = the probability of winning
• q = the probability of losing (= 1 – p)

The values of p and q (winning and losing probability) vary depending on whether you are using a basic blackjack strategy, counting cards, and how far into the deck you are. Those two are the unknown variables, that you must calculate in any given situation, and this is where there is some room for error.

Calculating Your Edge

The general house edge in blackjack ranges from around 2% up to 4%, but you can take that edge down to 0.5% if you apply a basic blackjack strategy. If you are playing a live game with real shoes and decks, then you can also count the cards. This will take the edge even lower, and after you have played through a good chunk of the deck, the edge can turn in your favor.

There are two ways to use the Kelly Criterion when playing blackjack. Either, you calculate one value before playing and then use it throughout your gaming session. Or, you can adjust your stake every few rounds (or even every round), recalculating the probabilities based on which cards were drawn in the previous round. It is best to start simple and try playing without adjusting your stake. If you get the hang of how the Kelly Criterion calculator and methodology works, then you can adjust your stake after every few rounds.

Explaining Kelly and Half Kelly Criterion

We talked a bit about adjusting your stake during your gaming sessions, and this takes us onto an integral part of Kelly Criterion betting. The Kelly Criterion itself. This is a number between 0 and 1 that represents how aggressive you want to play. If you set it at 1, then you are playing full Kelly. But you don't have to. You can also play Half Kelly – that is – setting the criterion value at 0.5. This means you will play with half the stake of the regular Kelly Criterion strategy (Instead of 1, it is 0.5). Of course, you can set this value at 0.6, 0.7, 0.8 and so on.

Why is this important? It is then must easier to adjust your stake without having to whip out your calculator and crunch those numbers again. You can simply calculate the Half Kelly stake and start with that amount. When you feel the edge has turned in your favor, crank up from 0.5 to 0.7 or even 1, and increase your stake accordingly.

Optimizing the Blackjack Kelly Criterion

Gaining an edge is the crucial element to bringing the most out of the Kelly Criterion blackjack strategy. Now you will spot an inconsistency here. When you start a game of blackjack, the house will always have an edge over you. You can bring it down to 0.5%, but the odds are still stacked against you. If ever so slightly. When the odds are not in your favor, the Kelly Criterion will bring out a negative value:

House Edge = 0.5% means:

• p = 0.495
• q = 0.505
• b = 1

f = [(1 x 0.495) – 0.505] / 1 = -0.01

The Kelly Criterion only works when the odds are in your favor, which means you will have to accept this negative value and play with a minimal stake to play through the initial disadvantage. However, by counting cards and playing through the deck, you can increase your advantage with every passing round. Once the odds swing in your favor, you can go all out on your Kelly Blackjack betting strategy, and gain control.

Creating a Budget and Finding the Right Tables

The house edge is crucial to Kelly Criterion betting, but so is creating a sturdy bankroll. The strategy tells you how much of your whole bankroll you can allocate to each round of blackjack. But you will need to create that bankroll. You must only play with amounts that you can afford to lose. Don't think in terms of how much you can win, but how much you can afford to spend. It is also useful to set win and loss markers.

When you have your bankroll, then you should look for appropriate tables where you can use the Kelly Blackjack strategy. Look for tables where the minimum and maximum limits are within your Kelly Criterion ranges, (factor in half Kelly and fractional Kelly limits too). Also, if you are using Basic Blackjack Strategy, make sure the table uses the rules defined in your BBS chart. Specifically, rules about Hard and Soft 17, Double Down and Surrender options, when you can split, and so on.

Practice Basic Strategy and Card Counting

Working through the deck until the odds swing in your favor is much shorter if you use a basic blackjack strategy. This immediately reduces the house edge from 2% to around 0.5%. From there, if you start counting cards, you can reduce that edge even further and turn it in your favor. There are various card counting strategies for blackjack, and contrary to what some may say, they are not illegal. At online casinos, no one will be tracking whether you are counting cards, using basic strategy charts, or any other tactics to build an edge.

If you play online blackjack with computerized dealers, you cannot really count cards. The games use powerful algorithms and randomize every round. This means the decks are reshuffled after every single round. You can still use strategies to reduce the edge, but not as effectively as if you were playing with a real deck of cards. Therefore, it is better to hit live tables with real dealers and decks of cards. There, you can count the cards before they are reshuffled, and learn how to take the advantage.

Adjust the Kelly Criterion Regularly

In the ideal world, you would recalculate the Kelly Criterion after every single round. You would have to recalculate the Probability of Winning before the start of the next round, changing the numbers based on which cards were drawn. If there are more high value vards (10s, Jacks, Queens, Kings, and Aces) in the deck, then the odds would stack in your favor.

The Kelly Criterion is quite an advanced strategy, and even the most proficient players need time to master it. Don't be afraid to use the fractional and Half Kelly Criterion values to adjust your bet for each round. You can also use a basic card counting system and calculate your stakes for when the remaining cards value is +1, -1, +2, -2, and so on. Start small, and once you are confident, then you can start refining your plan.

Stick to the Plan at All Times

The Kelly Criterion is designed to bring you a profit in the long run. It will mitigate your losses and maximize your stake when you have a higher chance of winning. It is not infallible, and you can still lose money when using the strategy. But over longer periods of time, it is designed to take you into the green.

This strategy only works on the condition that you don't break away or make any impulsive decisions. If you suddenly decide to place a 5x bigger stake and double down, you will jeopardize all that you have worked to build. Have patience, keep a realistic outlook, and stick to the plan at all times.