You already know to risk only a small slice on each trade. But there is a hidden trap. If you open five positions and risk 1% on each, it feels like you have 1% at stake five separate times. Whether that is true depends entirely on one thing: whether those positions move together.
Correlation is just how closely two things move in the same direction. Two coins that rise and fall almost in lockstep are highly correlated. Two that drift independently, one up while the other goes nowhere, have low correlation. On Solana, most memecoins are highly correlated: when the market dumps, they nearly all dump together, no matter how different their stories sound.
Portfolio heat is your total risk added up across every open position. If your five positions are truly independent, a bad day only hits one or two, and your real heat is modest. But if all five are highly correlated, one selloff hits all of them at once. Your 1% five times behaves like a single 5% bet, because the same wave takes them all down together.
So the fix is to size the group, not just each name. Count correlated positions as one cluster and cap the total heat that cluster can lose in a shared move. Holding ten memecoins that all follow Solana is not diversification, it is one big position wearing ten costumes. Real diversification means holding things that do not fall on the same day.
Portfolio heat is your total risk when correlated positions move together. Highly correlated bets stack into one large bet, so cap the risk of the whole correlated cluster, not just each trade on its own.
Tip. Before adding a position, ask if it would fall on the same bad day as what you already hold. If the answer is yes, it adds heat rather than spreading it, so count it against your cluster cap.