I'm sure this has been discussed before, but I couldn't find it anywhere on the forum and would really appreciate your input.

I'm struggling with determining how many positions I should have open at any given time. Whenever I open a position, I put in a stoploss order (or limit risk by buying an option) to make sure my risk on any position is not greater than 2% of my netliq. So say that I'm willing to risk 50% netliq, I can have 25 positions open. However, in terms of notional exposure, this means that my leverage is already over 2.

Now of course it is very unlikely that all my positions go against me. I try to calculate the actual expected risk using the touch probabilities of the stoploss and correlation between positions. Say as an example that this means that I can now hold 50 positions. This means that in terms of notional my leverage is getting uncomfortably high.

Another way to look at this to not look at notional exposure, but at buying power/margin. For a defined risk strategy (using long options), margin is relatively low and also doesn't significantly change. So theoretically if I would limit myself to defined risk positions I could optimize my portfolio by just adding as many positions as my buying power allows, up till I reach say 90% (to allow for some fluctuation in margin).

TLDR:

What is the constraint for adding new positions to your portfolio?

1. Naive risk: Looking at the sum of risk per trade.

2. Calculated risk (expected shortfall/max ecpected drawdown): Calculating your loss in a realistic worst case scenario.

3. Notional exposure/leverage.

4. Margin/buying power.

Looking forward to the replies of some more experienced traders!