Per-trade risk lies to you; heat tells the truth
"Never risk more than 2% per trade" is good advice for a single position. But it says nothing about how many positions you're in. Six trades at 2% each is 12% of your account on the line — and if they're all long crypto, a single red Bitcoin candle can hit every stop on the same wick. That's not six independent 2% risks; it's one 12% loss wearing a diversification costume. Portfolio heat is the number that catches this: it adds up the risk across your whole open book so you can see your true exposure before the market shows it to you the hard way.
How much heat is too much?
A widely used rule of thumb is to keep total open heat under 6%, with no single trade above 2%. Below that, even a bad cluster of stops is a recoverable dent. Push toward 10%+ and you're one ugly session away from a drawdown that needs a string of winners just to climb back — and the math of recovery is asymmetric (a 20% loss needs a 25% gain to undo). The ceiling isn't fixed: it should fall as your positions get more correlated. Five different altcoins are not five bets — for risk purposes they're closer to one leveraged bet on the whole market.
The correlated worst case
This calculator shows two numbers. Raw heat assumes your stops trigger independently — a best case that rarely happens in crypto. The correlated scenario assumes the positions pointing the same way all lose together, which is what actually occurs when the market turns. If most of your book is long, treat the correlated figure as your real risk and size down until it's something you can stomach. Then set each position properly with the position size calculator and sanity-check your bet fraction against the Kelly criterion.
How to use it
1. Enter your account balance.
2. Add a row for each open position, its direction, and how much you'd lose if its stop is hit — as a percent of account or in dollars.
3. Read your total heat, the health bar, and the correlated worst-case loss. Trim positions until the correlated number is one you can survive.
FAQ
Is heat the same as total position size? No. Heat is the total you'd lose if stops hit — not your notional exposure. You can have huge notional with tight stops and modest heat, or small notional with wide stops and dangerous heat.
What if I don't use stops? Then your "risk" per position is effectively your whole margin (or more with leverage), and your heat is enormous. This tool assumes a defined stop per trade; without one, use the liquidation calculator to see where the market stops you out instead.
Should hedged positions count? A genuine hedge (a long and a short that offset) reduces net heat. Set the smaller leg's risk to reflect the net exposure rather than counting both legs at full risk.