Portfolio heat measures your total exposure across all open trades. It answers a critical question: if everything goes wrong at once, how much do you lose?
Why Portfolio Heat Matters
Individual position sizing (risking 1-2% per trade) is only half the equation. You also need to monitor aggregate risk.
Consider: if you have 5 open positions each risking 2%, your portfolio heat is 10%. In a market crash, correlated trades can all stop out together — turning what seemed like prudent 2% risk into a devastating 10% drawdown.
Portfolio Heat Guidelines
| Heat Level | Percentage | Assessment |
|---|---|---|
| Conservative | 1-3% | Safe for most market conditions |
| Moderate | 3-6% | Acceptable with uncorrelated trades |
| Aggressive | 6-10% | Dangerous in correlated markets |
| Extreme | 10%+ | Account-threatening risk |
Managing Portfolio Heat
Rule of Thumb
Most professionals keep portfolio heat between 3-6%. This means:
- With 1% risk per trade: maximum 3-6 simultaneous positions
- With 2% risk per trade: maximum 2-3 simultaneous positions
Correlation Matters
If your trades are in correlated instruments (e.g., multiple tech stocks), treat them as a single position for heat purposes. Diversified, uncorrelated positions can tolerate slightly higher heat levels.
Common Mistakes
- Tracking per-trade risk but ignoring total exposure
- Opening new positions without checking existing heat
- Ignoring correlation between positions in the same sector
How JournalPlus Helps
JournalPlus calculates your portfolio heat in real-time across all open positions. It warns you when aggregate risk exceeds your defined limits — so you never accidentally over-expose your account.
