Portfolio Heat & Correlated Risk

Each trade’s risk can look small while the whole portfolio is exposed to one big move. Here is how to measure total open risk, and why stocks that move together count as more risk than they appear.

What portfolio heat is

Portfolio heat is the total amount you would lose if every open stop were hit at once. Five positions each risking 1% of your account add up to 5% heat. Many swing traders cap heat at about 4% to 6%, so even a sharp market drop that stops out everything leaves the account in good shape.

Portfolio heat: the sum of the risk on every open position.

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