Portfolio Heat Calculator

Portfolio heat is the total percentage of your account equity that would be lost if every open position hit its stop-loss at once. Sum the dollar risk on each open trade and divide by account equity. Three positions risking $1,000, $1,500 and $2,000 on a $100,000 account give heat of $4,500 / $100,000 = 4.5%. It answers: 'how much of my account is at risk right now?'

From 'Come Into My Trading Room' (Wiley, 2002): never have more than 6% of account capital at risk across all open positions in a month — counting both open stop-risk and realized losses already taken that month. At 6%, Elder stops all new trades until the next month. It's a portfolio guardrail alongside his 2% single-trade rule.

The cap is a guideline. Elder pins it at 6%; Van Tharp's framework allows 6–10%; FX Foundations suggests 5–6% for retail and warns that over 10% makes drawdown recovery very hard; institutions often use 3–6%. 6% is a sensible default for most retail traders; conservative traders use 4–5%. The calculator lets you set your own cap.

Per-trade risk (the 2% rule) governs a single trade; portfolio heat governs total risk across all open trades. You can respect 2% on every trade and still have dangerous heat if too many are open — three trades at 2% each = 6% heat. The two rules work together: 2% sizes each trade, the heat cap limits how many you hold at once.

The calculator sums each stop-risk independently (gross heat). If positions are correlated — say four tech longs — a sector shock can trigger every stop together, and gaps through stops can make losses exceed the modeled amounts. So the figure is a floor on your true risk, not a ceiling. Both Van Tharp and Elder warn against the illusion of diversification.

Portfolio heat is a simple deterministic worst-case snapshot — the sum of each position's stop loss over equity, assuming all stops hit at once. VaR is statistical: the maximum likely loss over a period at a confidence level, from a return distribution. Heat is practical for discretionary traders; VaR needs historical data and modeling and is common in institutional systems.

Yes — Elder caps the sum of month-to-date realized losses plus open-position stop-risk. This calculator models only the open-position snapshot (the 'if all stops hit now' figure). To apply Elder's rule exactly, add your month-to-date realized losses to the total heat before comparing to your cap.

When total dollar risk exceeds equity, heat exceeds 100% — common on small or heavily leveraged accounts. It means that if every stop hits you lose more than the whole account; a margin call is almost certain. The calculator shows the true figure without capping it, because a reading above 100% is critical information: close positions or cut size before adding any risk.

For a stock: shares × |entry − stop|. E.g. 200 shares, entry $150, stop $145 → 200 × $5 = $1,000. A long stop sits below entry, a short stop above — the absolute value handles both. Enter that dollar-at-risk per open position. For forex/futures/crypto use the contract size and point/pip value for your instrument.

Yes — 6% is Elder's most-cited figure, but Van Tharp allows up to 10% for a proven system and higher tolerance. Some aggressive traders use 8–10%. But research consistently warns that over 10% makes drawdown recovery extremely hard (a 20% loss needs a 25% gain; 50% needs 100%). The higher your cap, the deeper the drawdown you must survive after correlated stops.

Three options: (1) close one or more positions to cut total dollar risk; (2) tighten stops on open trades (lowers each risk but raises the chance of an early stop-out); or (3) stop opening new positions until heat falls below the cap. Do not simply raise the cap to fit more risk — that defeats the guardrail.

No. Drawdown is the realized peak-to-trough decline in equity; heat is the potential drawdown if every open stop triggered now — a forward-looking snapshot before any loss. Heat can be high with no drawdown yet, or drawdown high with low current heat. Monitoring heat helps you avoid the large drawdowns that damage long-term performance.