Intermediate📖 22 min read🏷 Risk Management
ADVANCED POSITION SIZING & PORTFOLIO HEAT
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Managing Multiple Positions and Correlated Risk
Once you master single-trade risk management, the next level is managing multiple positions simultaneously. This lesson covers portfolio heat, correlated pairs, and advanced position sizing techniques used by professional ICT traders.
Portfolio heat measures your total market exposure at any given moment
// Lesson Content
Portfolio heat is the total percentage of your account at risk across ALL open positions at any moment.
The Rule: Never exceed 6% portfolio heat. This means if you have 3 positions open each risking 2%, your total heat is 6% -- the maximum.
Why 6%?
- 6% heat = 5 consecutive losing days of max heat = 30% drawdown (recoverable)
- 10% heat = 5 consecutive losing days = 50% drawdown (very difficult to recover)
- 15% heat = 5 consecutive losing days = 75% drawdown (account essentially destroyed)
Portfolio Heat Calculation:
Position 1: 2% risk
Position 2: 1.5% risk
Position 3: 2% risk
Total Heat: 5.5% (Under 6% limit)
If you want to add Position 4, you must reduce risk on existing positions or wait for one to close.
📌 Maximum 6% portfolio heat across all open positions. Never exceed this limit.
// Test Your Understanding
// KNOWLEDGE CHECK
1. What is the maximum recommended portfolio heat?
2. Which pairs are highly correlated?
3. When should you scale into a position?
4. What percentage of a position should you close at 1:2 R:R?
// What to study next
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