Chapter 34 · Risk Management
Position sizing and the arithmetic of loss
The one calculation that decides whether you survive being wrong.
Position sizing matters more on NEPSE than on a market you can exit freely. Circuit limits mean a falling share may be unsellable at your stop, and compulsory delivery means you cannot close today what you opened today — so the size of the position is the only part of the risk you fully control.
Why losses are not symmetric
Losses and gains are not symmetric. Recovering from a loss requires a larger percentage gain than the loss itself, and the gap widens sharply.
| Loss | Gain needed to recover |
|---|---|
| 10% | 11% |
| 25% | 33% |
| 50% | 100% |
| 75% | 300% |
| 90% | 900% |
Sizing from risk, worked
Portfolio Rs 10,00,000. You accept losing at most 1% — Rs 10,000 — on any single idea. Entry Rs 500, stop Rs 460.
- Risk per share = 500 − 460 = Rs 40
- Position size = 10,000 ÷ 40 = 250 shares
- Capital deployed = 250 × 500 = Rs 1,25,000, or 12.5% of the portfolio
- The stop distance sets the position size, not how confident you feel.
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