Portfolio HeatThe "Portfolio Heat" indicator offers a visual representation of potential risk exposure for a portfolio across up to eight different symbols. It dynamically calculates three risk metrics based on current price, the number of shares owned, your designated stop loss, and total account size.
Open Dollar Risk – the total dollar amount you will lose if your stop loss is hit.
Open % of Portfolio Risk – the risk as a percentage of your total account size.
Starting Capital Risk – the dollar amount risked based on the difference between the entry price and stop price.
These metrics adjust in real-time, allowing you to monitor and manage risk more effectively.
Open portfolio heat refers to how much you would lose if all your currently held stock positions hit their stop-losses, whether those stop-losses are below what you paid for them - referred to as your “cost basis” - at your cost basis (breakeven) or above your cost basis (in the money). Admittedly, it’s a pretty bad day when all your stops are hit at once, but as traders we need to prepare for the worst. To visualize what “open heat” looks like on a single stock position, please note the chart below:
In the example above you can see that if you were to purchase 100 shares of this stock at a cost-basis of $18/share, and your stop-loss is placed at $15, if the current price of the stock is at $20 and the stock price drops to hit your stop-loss, it would result in a $500 total drawdown in your portfolio. Keep in mind this is just one stock position. Hypothetically, if you were even holding two stocks that had the above open heat, with a $10,000 account size, you could experience a 10% drawdown quite fast if the market corrects.
The “Portfolio Heat” indicator is fully customizable allowing traders to select the number of positions in the portfolio, colors and a detailed or a summary view of risk.
Note if entering a short position, you will enter the number of shares owned as a negative number.
