$ITA Trading: Managing Risk & Drawdown
My Friday entry on $iShares U.S. Aerospace & Defense ETF(ITA)$ using the M1 chart is an ideal example to demonstrate 33%/66% sell stops and 33% batches of sizing out. I want to highlight that you don’t need a lower timeframe chart for entry when structuring a trade around an opening range reclaim or breakout since the daily live candle already captures the full high-low range as it forms.
When I’m positioned in a trade that doesn’t hit layer 1 (33%) or layer 2 (66%) stops within T+3, it’s typically a strong runner, often yielding 5R+ based on my sell rules. This year, I’ve had winning trades as high as 51R (which would be +$510K on a $10K risk position), 4 trades at 20R+, and 11 at 10R+, with my max monthly win rate at a low of 31.6%. I am wrong most of the time and there's a need to control drawdown, and downside risk in every new trade.
The only way to control downside risk of each individual position and manage drawdown effectively is by consistently reducing position size or cutting losses when a trade fails to perform (I literally cut size and exit losers up to three times per unprofitable trade to reduce the -R to below 1). Simply reducing trade frequency or stepping away from trading doesn’t truly manage drawdown—it just pauses activity in your equity curve. Avoiding action is an escape from reality, and to improve, it’s essential to face issues directly and resolve them. You need to have your journal of all your historical activity (behavior).
It’s definitely much more effective to accelerate activity and risk when market conditions are ideal (e.g., MMTW bouncing out from an oversold level of 25%, indexes reclaiming the 50-MA following a deep correction). Those are the periods when I see the longest holding period for a winner and highest monthly % returns for a swing trader.
Image
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
