Trading Academy · Module 2 — Capital & risk management · Lesson 2/4
The previous lesson sized one trade. Nobody holds one trade. Portfolio heat is the sum of everything you could lose if every open stop were hit today — and five careful 2% positions add up to a 10% day before correlation has said a word.
Heat is the simplest portfolio number there is: for each open position, take the loss its stop-loss would realise; add them up; divide by the account. Per-trade sizing from the previous lesson caps each term in that sum. Nothing so far caps the sum itself:
| Open positions (2% risk each) | Portfolio heat | The day every stop hits |
|---|---|---|
| 1 | 2% | an ordinary losing day |
| 3 | 6% | a bad day |
| 5 | 10% | half of a 20% drawdown budget, in one day |
Hypothetical book; the 20% drawdown budget is the one lesson 1.1's hypothetical trader chose, and a −10% day sends a +11% recovery bill by that lesson's formula.
The mistake this lesson exists to prevent is thinking in trades when the account thinks in totals. Each position was sized as "a small bet"; the book was never sized at all. A trader who would refuse a single 10% position has built one out of five reasonable pieces — and on the day it goes wrong, the account does not care that the 10% arrived in instalments.
The habit that fixes it costs one division: know your heat before adding any position, and give the total its own cap, decided in advance, the same way the per-trade fraction was. When new heat would break the cap, the setup may be excellent — the answer is still no, or something else closes first.
The full lesson works through a hypothetical four-position book line by line, shows how a heat cap follows from the drawdown budget you already chose, explains why heat is a floor on the worst day rather than a ceiling (gaps), covers refusing good setups when the book is full — and ends with an exercise: computing the heat of a sample book yourself.
Full lesson
The rest of this lesson — the worked examples, the exercises, and how our own system applies it — is included with any paid NoGuru subscription. Members receive a personal access link by Telegram DM; open it once and every lesson unlocks on this device.
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