Once you move beyond single trades to managing a portfolio of 3–10 positions simultaneously, risk management becomes more complex. Individual trade risk (1% per trade) is necessary but not sufficient — you must also manage the risk of your entire portfolio at once, particularly the risk that several positions move against you at the same time.

The Correlation Problem

If you hold 10 positions all risking 1% each, you expect maximum loss of 10%. But if those 10 positions are all in the same sector or move together, a single event can hit all 10 simultaneously — giving you a 10% loss in one day.

Correlation ScenarioIndividual RiskActual Portfolio Risk
10 uncorrelated trades (different sectors)1% each~2–3% (losses offset each other)
10 correlated trades (same sector)1% each~8–10% (all move together)
5 NIFTY ETF + 5 NIFTY stocks (high correlation)1% each~7–9% in a NIFTY crash

Sector Concentration Limits

Maximum Sector Exposure Rules:
No single sector: more than 30% of total portfolio
No single stock: more than 10% of total portfolio
Maximum F&O exposure: 40% of capital in derivatives at any time
Maximum positions open simultaneously: 5–8 for most retail traders

If NIFTY Bank stocks already at 30% → Do not add another banking trade even if the signal is perfect

Maximum Open Risk

Open risk is the sum of all current stop-loss distances across all open positions — what you would lose if every open trade hit its stop simultaneously.

Maximum Open Risk Calculation Trade 1: ₹2,000 at risk (1% of ₹2,00,000) Trade 2: ₹2,000 at risk Trade 3: ₹2,000 at risk Total Open Risk = ₹6,000 = 3% of capital Rule: Maximum total open risk at any time = 5–6% of capital If total open risk reaches 6%, do not add new positions until existing ones stop or close.

Hedging with India VIX

When India VIX rises sharply (above 18–20), portfolio risk increases significantly because all stocks tend to fall together. Hedging strategies:

  • Reduce position sizes by 30–50% when VIX spikes above 20
  • Buy NIFTY Put options as a portfolio hedge during high VIX periods
  • Increase cash allocation — cash is a position too
  • Avoid adding new positions when VIX is rising sharply

The Cash is a Position Rule

Professional traders view holding cash as an active position — not as doing nothing. Cash protects you during high-volatility periods and gives you the ability to enter at better prices when opportunities arise.

Cash Allocation Framework for NSE:
Normal market (VIX 12–16): 30–40% cash minimum
Uncertain market (VIX 16–20): 50–60% cash
High-risk market (VIX 20+): 70–80% cash
After 10% drawdown from peak: 80%+ cash, review strategy

Correlation Between NSE Instruments

Holding CombinationCorrelationPortfolio Risk
NIFTY long + BANK NIFTY longVery highEffectively 1 position, double risk
NIFTY IT stocks + NIFTY longHighIT stocks amplify NIFTY moves
NIFTY long + Gold longLowGood diversification — gold hedges equity risk
Large-cap + Small-capModerateDecent but both fall in a crash
Long equity + Short F&ONegativeGenuine hedge — reduces total portfolio risk
Use Momentum IQ's portfolio tracker to monitor your total open risk across all positions. When a new trade appears, check whether adding it would push your total open risk above 5–6% of capital before entering. This simple check prevents the overexposure that turns a bad week into a catastrophic one.