To identify the indicators of adaptive capacity that determine vulnerability of households, an intensive investigation was conducted in farming communities at two locations in the Asian highlands. Livelihood vulnerability was assessed, classified to four categories and regressed against current adaptive capacity using logistic regression. Household head's education, irrigated land, non-agricultural income, and technologies used were associated with adaptive capacity. The strengthening of human, natural and financial capital is identified as the best means of managing risk in farming communities in this mountainous region.