Matthew Monaco has been “practicing” since 2017 and he has just started getting serious about this since 2019. The young trader has recorded an impressive profit in 2 “starters”.
In the fall of 2016, Matthew Monaco was studying at the Rochester Institute of Technology, with the goal of becoming a software engineer. He thought that this profession would have a high salary. However, after a few internships, he realized he was too tired of sitting in an office for the rest of his life. Since then, he became interested in stock investing, which he could do anywhere in the world.
Now, at the age of 24, Monaco is not a software engineer despite graduating in May 2020. Instead, he made a lot of money investing in stocks. Monaco grossed over $1.4 million between 2020 and 2021.
The journey to becoming a trader
While looking for a part-time job while in school, Monaco was attracted by a referral link to an online trading platform and a community of traders founded by Timothy Sykes – a former trader specializing in equities trading.
Monaco’s parents agreed to pay $6,525 for him to attend this course. In the summer of 2017, he decided not to do an internship to focus on learning how to trade stocks.
“At that time, I thought I would do this for three months and maybe settle down after that time because I could trade on my own,” Monaco said. Although I still can’t ‘walk on my own’ in 2017, those 3 months have definitely helped me a lot in my investment journey.”
At the time, Monaco only had about $2,000. However, he can’t day trade because he doesn’t meet the pattern day trader rule (PDT – the law requires investors with 4 or more trades in 5 days to do it with a margin account) and limit. You cannot trade in this unless you have a minimum of $25,000 in your account. By the end of that summer, he had lost half of his money and had only about $1,000 left.
One of the easiest mistakes to make, Monaco says, which he made that summer, was following other investors’ recommendations. According to him, it is a “path to disaster” whether there is a specific strategy or plan.
In the fall of 2017 and spring of 2018, he went back to school and focused entirely on his courses. He watched other traders in Sykes’s class invest throughout 2018. Monaco decided to wait and see the success of others as his inspiration.
After graduating, Monaco attended an internship and saved about $6,000, money that he “stored” in the hope of having enough $25,000 under PDT regulations. Along with that is the amount of money collected during part-time work while in college is 11,000 USD. The internship finally helped Monaco own more than the legal minimum and start investing seriously.
Trade with 5 criteria
The limitations of PDT have somewhat affected the way Monaco invests. Instead of buying and selling stocks in minutes, Monaco stays held overnight.
When the market opens, he spends about 30 minutes to 1 hour researching. Monaco uses a tool called Stocks to Trade to scan the most volatile stocks during the session. Normally there are about 10-15 such stocks in a session, but he ignores about 70% of those listings because they could have gained 50% in the early hours of trading.
Monaco then looks at the capitalization of the stock. Another variable that is also important is the stock’s circulation rate, which he finds reasonable to be 2-10 million shares. In addition, Monaco also focuses on stocks with a trading volume of more than $500,000 a day, which helps him know if the stock is likely to be volatile.
Monaco also tracks why a stock goes up in price. He has a note on each chart, listing articles about the business, helping him determine what is affecting the stock price.
Overall, Monaco tracks about 3 stocks per day. After that, he left the computer to focus on other things for the rest of the day. According to Monaco, this helps him avoid the situation of reacting too soon. 1-2 hours before the close, Monaco will return to see which stocks on the watchlist are still holding prices.
In August 2019, he started serious trading. For the first few months, he only traded 1 or 2 stocks a day. He gradually earns money every month. In September, he earned about 500 USD and by October the amount had doubled. In December 2019, Monaco’s portfolio made more than $6,000 profit.
“Preserve” the profit already made
No matter how the market moves, Monaco still follows one main strategy: trading breakouts (when the stock price crosses a certain level) with a long position.
“In September 2019 and the next four months, my return was lower than expected,” he said. Only about 40-50% of my trades are profitable but that’s because each profitable trade is 2-3 times bigger than the losing trade.”
If the stock price goes up, he increases his “stop loss”. He said he does not use automatic stop loss because by the time the broker executes the trade, the loss may be higher than expected.
As the share price continues to rise, Monaco will gradually increase its position in a pyramid pattern. If he enters a position with $1,000 and is willing to lose $100, then even if he doubles the position to $2,000, he is still only willing to risk a $100 loss. A “mental stop loss” will adjust upwards to maintain that level of risk.
However, pyramid trading is not a sure bet. In February/December 2020, Monaco is bullish on Alpine 4 Holdings Inc (ALPP), which has a starting price of around $0.41 and a breakout point of $0.48. The stock then dropped in price and he had to close the position. On December 31, the stock price spiked to $3.64 again.
Monaco notes that he takes profits when he sees a stock trending up too quickly. “If you’re a sprinter and suddenly you’re sprinting 100m, you have to take a breath or relax a bit before running again,” he said. So if I see a trade going parabolic, I know there’s a good chance that stock will go down.”
When he saw steady profits, Monaco had a huge confidence that helped him believe in himself and his strategy rather than following other traders. He believes this change is an important turning point as every investor has different levels of risk tolerance and habits.
In 2022, Monaco traded the first 2 weeks of January and was tired of losing about 26,000 USD. He decided to take a month off – which he considers important to his strategy. When he re-watched the market in February, he noticed that trading volume and liquidity remained low.
Monaco decided to try a new strategy, options trading. He discovered by buying a $24,000 option on Google stock because he thought the stock would appreciate in April. However, Google kept falling and Monaco had to sell the position at a 90% loss.
This is a sign for Monaco to decide to “stand out of the market” to make sure not to lose the money earned in the past 2 years. He didn’t start trading until August when the market recovered and inflation cooled down.
Refer to BI