Risk management: position sizing and stop losses

The most important skill in markets isn't picking winners — it's surviving the losers.

Position sizing. A standard discipline is to risk no more than 1–2% of total portfolio value on any single trade. "Risk" here means the distance from your entry to your stop loss, multiplied by quantity. If your portfolio is ₹10,00,000 and your max risk per trade is 1%, you can afford to lose ₹10,000 if the trade goes against you. That dictates how many shares you can buy given your stop distance.

Stop losses. A stop is a pre-committed price at which you will close the trade. The point isn't to be right about the stop — it's to be *decided in advance*. Discretionary exits in the middle of a falling trade are how small losses become large ones.

Volatility-aware sizing. Two stocks at the same price aren't equally risky. A high-volatility name (e.g. small-cap pharma) should get a smaller position than a low-volatility name (e.g. a large defensive). One common approach: size each position so its expected daily move equals a fixed fraction of portfolio value.

Drawdown psychology. A 20% drawdown requires a 25% gain to break even. A 50% drawdown requires 100%. Capital preservation isn't optional; it compounds across decades.

Educational only. Not investment advice.