Ticker&TapePortfolio heat: your total open risk
Risking 1% per trade is a good start, but you rarely hold just one trade. Portfolio heat adds up the risk of all your open positions so you know what a really bad day could cost.
What portfolio heat means
For each position, your open risk is what you would lose if the stock fell to your stop: the distance from your entry price to the stop, multiplied by the number of shares. Portfolio heat is the sum of that risk across every open position, usually shown as a percentage of the account.
Heat answers a simple question: if the market had a terrible week and every stop got hit, how much would I lose? If a stop has been raised to your entry price or above, that position adds zero heat, because hitting it would no longer cost you money compared with what you paid.
A worked example with 5 positions
Take a $50,000 account with five stocks, each sized at roughly 15% to 16% of the account:
- Stock A: 100 shares bought at $80, stop at $74. Risk = $6 × 100 = $600.
- Stock B: 200 shares at $40, stop at $37.20. Risk = $2.80 × 200 = $560.
- Stock C: 50 shares at $150, stop at $140. Risk = $10 × 50 = $500.
- Stock D: 300 shares at $25, stop at $23.50. Risk = $1.50 × 300 = $450.
- Stock E: 80 shares at $100, stop at $93. Risk = $7 × 80 = $560.
- Total heat: $2,670, which is 5.3% of the account, with about 78% invested.
Keep heat under a limit
Each trade above risks about 1%, which looks careful. Together they put more than 5% of the account on the line. Many traders set a ceiling for total heat, often somewhere around 5% to 8% of the account. If a new trade would push heat above the limit, you either skip it, buy a smaller size, or reduce risk elsewhere first.
Keep in mind that heat is a planned loss, not a guaranteed one. A stock can gap down overnight, below your stop, and you get filled at a worse price. That is one more reason to keep the limit modest and to watch heat closely before big events, like an earnings report or a Fed meeting on the economic calendar.
Raising stops to reduce heat
The good way to lower heat is to let winners pay for it. Suppose stock A rises from $80 to $92. You move its stop up to $80, your entry price. If it falls back, you break even, so A now adds zero heat. Total heat drops from $2,670 to $2,070, or about 4.1%, and you have room for a new trade without increasing what you could lose.
Raise stops only to logical levels, such as below a recent low or under a rising moving average. Pulling a stop too close just to make the number look smaller gets you shaken out by normal noise. And never move a stop down to make room: that increases heat and breaks your plan.
Your Portfolio shows the stop for each position, so you can add up the open risk in a minute as part of your daily routine.
Portfolio heat at a glance
| Risk per position | (Entry − stop) × shares |
|---|---|
| Portfolio heat | Sum of all position risks ÷ account |
| Typical limit | About 5% to 8% of the account |
| Stop at or above entry | Counts as zero heat |
| Too hot? | Skip, size down, or raise stops to logical levels |
Common mistakes
- Checking the risk of each trade but never adding them up.
- Adding a new position when heat is already at the limit.
- Lowering a stop to give a stock more room, which quietly raises heat.
- Forgetting that gaps can make the real loss bigger than the planned one.
Key points
- Portfolio heat is the total you would lose if every stop were hit.
- Keep it under a limit, such as 5% to 8% of the account.
- Lower heat by raising stops on winners, never by lowering them.
Check what you learned
Answer at least 2 of 3 correctly to complete the lesson.
1. You hold 6 positions, each risking 1% of the account to its stop. What is your portfolio heat?
Heat adds up the risk of every open position. Six positions at 1% each means 6% of the account is at risk if every stop is hit.
2. A stock you bought at $50 is now $60 and you raise the stop to $50. What does it add to portfolio heat?
Heat measures loss versus your entry. With the stop at the entry price, a stop-out means breaking even, so the position adds no heat.
3. Your heat is at your 6% limit and a great new setup appears. Which choice fits the rule?
To stay under the limit you either reduce risk elsewhere the right way, by raising stops, or take less risk on the new trade. Lowering stops increases risk.
Review stops in your Portfolio → Try it on Ticker&Tape