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The risk of selling in small stocks, and why it grows on bad days
Published by The Retail Trader · AUG 01, 2026 · Risk Management
Getting into small companies always feels easy. The problem comes not at entry but at exit — and it comes on exactly the day everyone wants to exit.
On normal days a smallcap can show decent volume. On a bad day the buyers step away and the same stock goes into the lower circuit.
This means liquidity is not a stable property — it shrinks exactly when it is needed the most.
Before taking a position, this can be checked:
• The average daily traded value, and its level in the last bad month.
• What percent of that value your position is.
• How many days it would take to exit the whole position without moving the price.
• What the delivery percentage is — volume alone does not tell enough.
A simple rule works well enough: if exiting your position would take more than a day, that position is too big for you. This rule may reduce returns, but it protects you from the situation where returns do not matter at all.
This article is for educational purposes only — it is not a buy or sell recommendation, makes no claim of guaranteed returns, and is not advisory. Rules, rates and mechanics are changed by the exchanges, SEBI and RBI from time to time, so verify every number yourself with your broker or the official source.