NOTE: edited July 2012
Ed Seykota has talked about the concept of portfolio 'heat', which relates to the overall risk of your portfolio. For example, if you have 5 trades open, each with a risk per trade equal to 2% of your equity, then the 'heat' of your portfolio is 10%. I have come across this interesting study here, which shows the effect of adjusting results from a trend based system by altering both the risk percentage per trade, as well as the overall heat of the portfolio.
When I started trading, I overtraded by having way too much heat, up at stupid levels. This was as well as excessive risk for each trade. It was only when I started to use proper risk parameters that I started making (and keeping) my trading profits.
I referred to this in my 2012 interview with trader and author Steve Burns.
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