Educational guide

How Portfolio Heat Combines Planned Trade Risk

Portfolio heat is a planning view that adds the initial dollar risk of open position plans and compares that total with the selected portfolio value.

Published and reviewed by Millwheel Oy · Updated October 31, 2026

Source register

What each source contributes

MSPT portfolio risk and trade planning methodology

Role: Defines the selected-portfolio scope, cash treatment, planned risk, and plan-relative measurements used by MSPT.
Timing: Reviewed with the current public MSPT workflow.
Limitations: Calculated plan risk cannot guarantee execution outcomes or model every shared exposure.

Investor.gov asset allocation and diversification guide

Role: Provides official investor education on asset allocation, diversification, time horizon, and risk tolerance.
Timing: Public investor-education reference accessed for this guide.
Limitations: Diversification can reduce some risks but cannot prevent investment losses.

Portfolio heat and allocation answer different questions

Allocation measures how much portfolio value is invested in a holding, sector, or other category. Portfolio heat estimates how much planned initial risk is represented by the structural stops recorded for open positions.

A large holding can have modest calculated heat when its entry and stop are close. A smaller volatile holding can contribute more heat. Neither measure replaces the other.

Position heat in dollars = planned initial risk per share × open shares.
Portfolio heat in dollars = sum of the included positions' planned dollar risk.
Portfolio heat percentage = portfolio heat in dollars ÷ selected portfolio value × 100.

Worked example

Assume three open plans have simplified initial risks of $250, $300, and $150. Their combined planned risk is $700. If the selected portfolio value is $50,000 using the same cash treatment shown on Holdings, the calculated heat is 1.4%.

The number describes the recorded plans at that moment. It is not a forecast of the portfolio's maximum loss and does not establish an appropriate heat limit.

Look beyond the total

Group positions that depend on the same sector, factor, currency, commodity, or macroeconomic outcome.
Identify holdings without a current plan or structural stop; they cannot contribute a comparable planned-risk amount.
Review concentration and allocation alongside heat because correlated positions may fail together.
Refresh the calculation after fills, partial exits, stop changes, cash movements, or corporate actions.

Important limitations

Stops can execute away from their planned prices, especially during gaps or illiquid trading.
Adding individual planned losses does not model correlation, volatility, nonlinear option exposure, or a market-wide shock.
Missing or stale quantities, prices, plans, or broker evidence can make the result incomplete.
Diversification depends on underlying exposures, not merely the number of ticker symbols held.