Portfolio heat is the total percentage of your trading account that is currently at risk across all open positions simultaneously. If you have five open positions each risking 2% of account (stop-loss to entry distance × position size), your portfolio heat is 10% — meaning a simultaneous stop-loss on all five positions would reduce your account by 10%. Without explicit portfolio heat management, automated bots with multiple simultaneous positions can inadvertently create concentrated risk that violates your overall risk tolerance, even when each individual position size appears responsible.
This guide covers portfolio heat calculation, maximum heat thresholds, correlation-adjusted heat, and how to configure portfolio-level risk limits in DennTech. For individual position sizing, see our position sizing guide. For the circuit breaker that triggers when heat materializes into drawdown, see our circuit breaker guide.
Portfolio Heat Calculation
For each open position:
Position Heat = (Entry Price - Stop-Loss Price) / Entry Price × Position Size as % of Account Example: BTC long @ $68,000, Stop @ $66,600 (ATR-based stop at $1,400 distance) Position size: 5% of $20,000 account = $1,000 Position Heat = ($1,400 / $68,000) × 5% = 2.06% × 5% = 0.103% of account Wait — simpler approach using R (risk per trade): Risk $ = Entry - Stop × position size in units Risk per trade % = Risk $ / Total Account × 100 If you risk $200 on a $20,000 account = 1.0% portfolio heat per position
The cleaner approach: set each position to risk exactly 1–2% of total account (see position sizing guide). Then portfolio heat = number of open positions × risk per position. Five positions at 1% each = 5% total heat.
Maximum Portfolio Heat Thresholds
| Heat Level | Open Positions at 1% Risk | Interpretation |
|---|---|---|
| Below 5% | Up to 5 | Conservative — appropriate for new strategies or bear markets |
| 5% to 10% | 5 to 10 | Moderate — standard for established, backtested strategies |
| 10% to 15% | 10 to 15 | Aggressive — requires high-quality strategies with low correlation |
| Above 15% | 15+ | Excessive for most retail traders — reduces tolerance for simultaneous losses |
Recommendation: Maximum portfolio heat of 10% for typical multi-strategy bot operation. This means if all open positions hit stop-loss simultaneously (a tail-risk scenario), the account loses no more than 10% — a manageable drawdown for a quality strategy portfolio.
Correlation-Adjusted Heat
Standard portfolio heat treats all positions as uncorrelated. In reality, all long crypto positions (BTC long, ETH long, SOL long) are highly correlated — when BTC crashes, ETH and SOL typically crash simultaneously. This means naively diversifying across five long crypto positions at 1% each provides much less than 5% true diversification.
For crypto specifically:
- BTC/ETH correlation: typically 0.85–0.95 during market events
- BTC/altcoin correlation: 0.7–0.9 during bear markets, lower during bull markets
- Cross-exchange same-pair positions: near-perfect 1.0 correlation (same underlying risk)
Correlation-adjusted heat calculation: weight each position's heat by its correlation with the rest of the portfolio. Two 2% positions at 0.9 correlation effectively behave like 2% × (1 + 0.9) = 3.8% of heat rather than 4%. For conservative management, assume near-perfect correlation during worst-case market stress and set maximum simultaneous same-direction positions as if they were all correlated at 1.0. See our multi-exchange guide for the diversification context.
Heat Across Multiple Exchanges
Portfolio heat must be calculated across all exchanges, not per exchange. If you have three exchanges each running two positions at 1%, your total portfolio heat is 6% — not 2% per exchange. DennTech's aggregate dashboard displays total open heat across all connected exchanges in real time, ensuring you always see the full risk exposure picture.
Heat-Triggered Rules in DennTech
DennTech supports heat-based entry restrictions: if total portfolio heat is above your configured maximum, new position entries are blocked automatically — the strategy generates a signal but the order is not submitted until heat drops below threshold. This prevents compounding risk during periods when you already have maximum exposure deployed. Configure via Settings → Risk Management → Maximum Portfolio Heat. Combine with the circuit breaker for full defensive automation.
Tracking Portfolio Heat Over Time
Portfolio heat is not static — it fluctuates as positions open and close throughout the trading session. DennTech's real-time heat display updates after every order fill, ensuring you always see current total exposure rather than a snapshot from the last manual calculation. Reviewing heat levels weekly reveals patterns: are you consistently at maximum heat during specific market sessions? Does heat spike on specific pairs or strategies? These patterns inform whether your maximum heat threshold is calibrated correctly for your strategy mix. Log your heat metrics alongside other performance data — see the log analysis guide. Combine heat limits with position sizing rules at the position sizing guide. View all risk management tools at the pricing page.
Frequently Asked Questions
- Is portfolio heat the same as leverage?
- No — portfolio heat is the percentage of your account at risk via stop-losses, assuming each position is stopped out at the maximum loss point. Leverage affects the magnitude of moves relative to your capital, while heat measures the specific downside exposure at configured stop-loss levels. A 5% leveraged position with a 1% stop-loss has only 0.05% portfolio heat. A 2% unleveraged position with a 50% stop-loss has 1% portfolio heat. For crypto bot spot trading (no leverage), heat is directly tied to stop-loss width and position size — see our stop-loss guide and position sizing guide.
- Should I include DCA safety orders in portfolio heat calculation?
- Yes — DCA safety orders represent real capital commitment and correlated directional risk. A DCA position with a base order + 4 safety orders deployed represents substantial capital in a single directional trade. To calculate DCA heat: (total capital committed to the DCA trade × max loss percentage if fully averaged position hits its stop) / total account. See our DCA guide for DCA position sizing. Full risk management documentation at DennTech docs.
- What is a practical maximum heat for a beginner bot trader?
- Start with a maximum portfolio heat of 4–6% (2–3 positions at 1.5–2% each). This conservative starting point limits maximum simultaneous loss to 4–6% in a worst-case stop-loss scenario, providing time to evaluate strategy performance without catastrophic drawdowns. As you build confidence in your strategies through live track record (see trade expectancy and profit factor in our expectancy guide), gradually increase maximum heat up to 10–12%. Get started at the pricing page or explore the live demo.
Risk management stack: Position Sizing (guide) + Portfolio Heat (this guide) + Stop-Loss (guide) + Circuit Breakers (guide) + MDD (guide).