Managing several swing positions at once

What you will learn

• The difference between initial risk, open risk to the stop and capital deployed
• How to apply a total-risk cap, a sector cap and a position limit before each new entry
• How to stress-test all open positions against a market-wide gap
• A daily order-maintenance routine for several overnight positions

Explanation

Correlation and portfolio heat (the sum of open risk) are introduced in the course Risk Management. This lesson applies them to a book of swing trades that are held overnight and change every day.

Three numbers for each position

• Initial risk: (entry − stop) × shares for a long trade. If the stop has moved above the entry, the initial risk is zero and part of the profit is protected.
• Open risk to the stop: (current price − stop) × shares. This is what you give back from today's value if the stop fills exactly. It includes open profit.
• Capital deployed: current price × shares. In a cash account without leverage the total cannot exceed the account.

Track all three. Heat based only on initial risk can look small while open profit at risk is large.

Limits before each new entry

Write fixed limits and check them in this order:

1. Total heat cap: the sum of initial risk of all open trades, for example at most 5% of the account.
2. Sector cap: the sum of initial risk in one sector, for example at most 2%. Shares in the same sector often move together on one piece of news.
3. Position limit: a maximum number of open trades, for example 6, so that you can still check every chart and order each day.
4. Capital check: the new position must fit the cash available.

If any limit is broken, skip the trade or reduce its size. Do not close a good trade only to make room.

The market-wide gap

Many shares can gap down on the same morning after broad news. Stops then fill at or below the opening price, not at the stop price. A stress test assumes that every stop fills a set percentage below its price and adds the losses. It does not predict a crash; it shows whether the total loss would still be acceptable.

Order maintenance

• Use stop orders that remain valid until cancelled (check how your broker names and handles them) and confirm after each update that they are active.
• Update trailing stops once per day at a fixed time, after the close.
• Keep a one-line record per position: entry, stop, shares, sector, next event date.

Worked example

Hypothetical example: cash account €50,000, risk per trade 1% (€500), heat cap 5% (€2,500), sector cap 2% (€1,000). Fees, spreads and taxes are excluded.

1. Heat = €0 + €500 + €500 + €500 = €1,500 = 3.0% of the account.
2. Open risk to stops = €640 + €600 + €625 + €375 = €2,240.
3. Capital deployed = €27,960 = 55.9% of the account.
4. New candidate E (tech): entry €30.00, stop €28.00, risk €500 → 250 shares, value €7,500. Tech initial risk becomes €500 + €500 = €1,000, exactly the sector cap. Heat becomes €2,000 = 4.0%. Capital becomes €35,460 = 70.9%. All limits are met, so E is allowed; a further tech trade would not be.
5. Stress test on A to D: every stop fills 3% below its price. Fill prices: A €40.74, B €67.90, C €19.40, D €54.32. Loss from current values = €841.60 + €810.00 + €775.00 + €585.00 = €3,011.60 (6.0% of the account). Measured from entry the net result is +€118.40 − €710 − €650 − €710 = −€1,951.60, which is 3.9% instead of the planned 3.0%.

Common mistake

Practice activity

On paper: account €30,000, heat cap 4%, sector cap 2%. Open long trades: (1) 100 shares, entry €50.00, stop €47.00, sector X; (2) 80 shares, entry €30.00, stop €27.50, sector Y; (3) 60 shares, entry €90.00, stop €85.00, sector X. Calculate the heat, the risk budget left under the heat cap, and decide whether a new trade in sector X with €300 risk is allowed.

Key takeaways

• Track initial risk, open risk to the stop and capital deployed for every position.
• Check heat cap, sector cap, position limit and cash before each entry.
• A stress test shows what a market-wide gap could cost across all positions.
• Update and confirm stop orders once a day at a fixed time.

Next step

In the next lesson you will review closed swing trades with metrics that go beyond win rate and expectancy.