Matthew Monaco came across day trading when he was searching for ways to make money online. Once he finds a rising stock, he gradually scales into it while he maintains his risk margin. His goal is to gain three times his risk margin before he gradually exits in increments. In the fall of 2016, Matthew Monaco was attending Rochester Institute of Technology, on track to becoming a software engineer. It was a degree he assumed would lead to a high salary.
But after a few internships, he realized he didn’t want to sit in a cubicle for the rest of his life. His disdain for the path he’d picked led him to take up an interest in stock trading, which he felt he could do from a laptop anywhere in the world. He had come across the idea during college when he was searching for side hustles that would earn him a little extra cash.
Today, he’s 24 years old and he’s not a software engineer, although he graduated in May 2020. Instead, Monaco made a career out of trading stocks. He gained over $1.4 million between 2020 and 2021, according to IRS Form 1099s prepared by his broker, viewed by Insider, and confirmed by the CPA who prepared his taxes.
Getting startedWhile he was researching a side gig in school, one source that stood out was an online trading platform that had educational content and a community of other traders founded by Timothy Sykes, a former penny-stock trader known for claiming to flip his bar mitzvah cash gift into over $1 million in gains.
Monaco’s parents agreed to pay for the course, which cost $6,525, according to a receipt viewed by Insider (pricing ranged anywhere between $6,000 to $9,000 depending on the add-ons selected). During the summer of 2017, he decided to turn down an internship so he could focus on learning to trade.
“At the time, I was 100% convinced like, ‘Okay, I do this for three months and I’ll probably be set for life at the end of that because I’ll be able to trade the markets’,” Monaco said. “That did not happen in 2017. But the time and energy I put in those three months definitely helped expedite my journey.”
At the time, he only had about $2,000 to his name, which he threw into a trading account. However, he couldn’t make intraday trades because he didn’t meet the pattern day trader rule (PDT), which restricts day trading unless a minimum of $25,000 is in the account. By the end of that summer, he had lost half his deposit and was down to about $1,000, he said.
One of the easiest mistakes — and one he definitely made that summer — was to follow the stock recommendations of other traders, he said. He calls them a “recipe for disaster” because they exclude an actual strategy or plan.
During the fall of 2017 and spring of 2018, he returned to school and focused on his courses full time. He watched other young traders in Sykes’ course from the sidelines making money during 2018. Instead of being discouraged for missing out on opportunities, he used their success as an inspiration, he said.
Since his degree required him to complete a full year of internships to graduate, he couldn’t turn down any further internships. In the summer of 2018, he accepted an offer to work at Priceline’s iOS mobile team. He recalls sitting at his desk all summer watching the stock market from his phone as he worked.
The paid internship allowed him to save about $6,000, which he stashed aside hoping that he could one day reach the minimum $25,000 PDT requirement. While in school, he took an additional side job for about 18 months at a company called Killer Papers. He helped students write essays and recalled making at least another $11,000, which went into his trading account. He had convinced himself that the only way he could become a successful trader was if he had unrestricted ability to trade.
“Was that true? No,” Monaco said of his assumption. “And in fact, the lessons I’ve learned when I was under PDT forced me to really be particular about the trades and not trade all the time. It really helped me out in the long run.”
The last internship he did in the spring of 2019 allowed him to save the final leg to bypass the PDT rule. By August of 2019, between his internship at Priceline and L3Harris Technologies, as well as his side gig writing essays, he jumped into trading with his $25,000. He was able to save most of his earnings because he lived off-campus with five roommates. His rent was about $380 a month and increased to $500 by 2020. Most of his college expenses were covered by his student loans, which he told Insider his parents ended up paying off.
Setting up a trade with 5 criteriaIronically, the PDT restrictions helped influence his trading style. Instead of buying and selling stocks within minutes, Monaco often held his positions overnight.
When the market opens, he spends about 30 minutes to an hour doing research. He uses a tool called Stocks to Trade to scan for the biggest stock moves of the day. The list of biggest movers is usually about 10 to 15 stocks a day, he said. But he ignores about 70% of the list because they may have already spiked by 50% in the early trading hours.
He will then review the stock’s market cap, which is important because larger can mean less volatile. Another variable is the stock’s float because it shows the number of shares that are available for public investors to buy. Small-cap stocks, which he often trades, could have a large percentage of their shares locked up. The float will tell a trader how much liquid supply there actually is on the market. His sweet spot is 2-10 million shares.
Additionally, he sticks to stocks that have more than $500,000 of trading volume in a day. This tells him there’s enough liquidity that it reduces the possibility one transaction will move the stock by a large percentage.
He also wants to know why a stock is increasing in price. A section at the bottom right of each stock’s chart lists relevant articles about the company that help him determine what’s moving its price.
“The best trades time and time again [have] a reason behind why the stock is moving for people to latch onto,” Monaco said. “And as long as there’s a reason behind the move, it’s not just some random spike, there’s a strong likelihood that I’ll set up for a trade later in the day.”
On average, he says about three stocks a day make it to his watchlist. He then walks away from the computer to focus on other things for the remainder of the day. This removes any temptation to react too soon, he said. An hour or two before the market closes, Monaco will circle back to see which of the stocks on his list have sustained their prices.
If the price spikes in the morning and it’s still holding by the afternoon, it’s likely going to continue to break out either that same day or the next morning as the catalyzing news continues to spread, he said. He will buy the stock and aim to hold it until the next morning, he said.
In August of 2019, he began to trade seriously. For the first few months, he only traded a stock or two a day, partly because he was just getting started.
He began by making gradual gains each month. In September, he made about $500, and in October he was able to double his gains to $1,000, he said. In December of 2019, he made the biggest jump in gains when he made over $6,000. The last month of the year tends to be a good trading month, Monaco noted.
Staying in net gains Regardless of how the market is doing, Monaco sticks to one main strategy: He trades breakouts in long positions.
“September 2019 and the four months that followed the rest of that year, I’d say my winning percent was probably lower than you’d expect,” Monaco said. “Around 40% to 50% of my trades were winners. But the reason I was profitable is every winner I’d have would be two or three times the size of my loser.”
Monaco noted that he doesn’t have control over the upside potential of a stock, but he does have some control over his risk. Therefore he enters every trade with a clear idea of the dollar value he’s willing to risk. If a stock drops to that level, he exits the trade and accepts his loss.
If a stock’s price increases, he will move what he calls his “mental” trailing stop loss up. Monaco doesn’t use an automatic stop loss because, by the time the brokerage executes the trade, his losses may be more than what he planned, he noted.
“I’ll be able to fill my shares faster than someone using a stop loss order because I’m sitting there actively trading,” Monaco said.
Peter Tuchman, a trader who has been on the floor of the New York Stock Exchange for the last 38 years, says not setting a market stop order is an easy way to turn a winning trade into a losing one. If the stock plunges aggressively, you may not react in time. Having that automatic stop loss will guarantee you get out.
However, there’s a difference between a market stop order and a limit stop order. The latter won’t guarantee you’ll get out at the set price, instead it will trigger a sell order within a range.
Overall, whether you’re taking the mental approach or the automatic one, neither guarantees a sale at the set price as it’s subject to market availability.
As the stock’s price continues to rise, Monaco gradually adds to his position, this is known as pyramiding. The key detail is that the dollar value he’s willing to risk remains the same, no matter how large his position gets. Meanwhile, his upside potential increases. For example, if he entered a position with $1,000, and he was willing to risk $100, even if he doubles his position size to $2,000, he’s still only willing to risk $100. His mental stop loss will adjust upwards to maintain that risk margin.
Scaling into a trade is a common strategy, but it’s not something Tuchman does or recommends. If he’s in a winning trade, his goal is to take profit rather than add to the position.
“If we’re buying on technical analysis, then the price that we entered the stock was the price we wanted to be long. And if it goes up, we want to immediately start taking profits,” Tuchman said.
Indeed, pyramiding into a trade isn’t a sure bet. On December 2, 2020, Monaco was gradually adding to a breakout position in Alpine 4 Holdings Inc (ALPP) starting at a share price of about $0.41, according to his monthly brokerage statement. He gradually kept buying in up to a share price of $0.48 because that’s where the breakout lows were.
However, the stock pulled back and he had to exit the position. By December 31, the stock price spiked to $3.64. If he held the trade, he could have had drastic gains instead of a loss. Since pyramiding also means Monaco needs to move his exit price up, a slight and temporary pullback could cause him to exit too soon. However, since his losses were limited, he can survive to trade another day, he noted. Therefore, the upside is that it also means he could re-enter the trade when the stock starts to rally again, which is what he did mid-December.
“Say I got too aggressive. It caused me to get out, which is kind of what happened here on ALPP. But that’s okay because the main key is respecting your risk,” Monaco said.
“It’s not something I force on the trade,” Monaco said. “If the trade develops correctly, then it gives me a better risk level. So then I can move the risk level up. I can then start buying more shares because my risk is smaller.”
Exiting a position isn’t as black and white. The only exit he’s certain about is when it’s a losing trade. On the winning end, it’s more of an art than a science. His goal is to gain three times his risk margin before he gradually exits in increments. Some traders may be tempted to sell once they see slight gains and this may seem like a safe way to play it. However, Monaco noted that this will hurt you in the long run if your win-to-lose ratio is equal or less.
Some scenarios will prompt him to take gains off the table before he reaches his target. For example, if a trade moves too quickly to the upside, he will sell some shares.
“If you’re a sprinter and all of a sudden you sprint 100 meters, you got to take a breather, maybe relax before you sprint again,” Monaco said. “So if I see a trade going parabolic, I know odds are, this stock is going to pull back because it simply just got ahead of itself.”
If his position is too large, he will sell some shares before market closing so he isn’t holding overnight.
For Tuchman, exiting a trade is straightforward. Once you’ve entered a trade and set your stop loss, your next impulse should be to set a sell order when the share price reaches, for example, $0.50 from where you bought it. This will lock in your gains.
Once Monaco saw consistent profits, he had a huge confidence boost which helped him trust himself and his own strategy rather than trying to follow other traders. He believes this shift is an important turning point because every trader has a different risk profile, lifestyle, and behavioral habits. What may work for someone else, may not work for him, he said.
Some traders have a 20% or 30% win percentage. But for them to remain profitable, their winners need to be 8, 9, or 10 times the size of their losers, he noted. On the other end, he knows traders who have a 90% win percentage but each win is by a very small margin. It also means they have to sit in front of the computer all day, making many small trades that add up.
In 2022, Monaco began by trading in the first two weeks of January and was feeling burnt out after incurring a few small losses that added up to about $26,000. He decided to take a month off, which he considers part of his strategy. When he checked the market again in February, trading volume and liquidity remained low.
He decided to try a new strategy by turning to options trading because he felt there was more opportunity. Options trading was something he heard about from other traders he followed on Twitter and his inner circle of friends. He thought he would explore it by purchasing $24,000 worth of call options on Google (GOOGL) because he assumed the stock would increase in price by April. However, the stock continued to fall in price and he sold his contracts at a loss of 90%.
That was a sign for him to stay out of the market to make sure he didn’t lose the gains he had made in the last two years. In August, he started trading again after the stock market began to rally and inflation began to tame.
“I no longer care what so and so says on Reddit or on Twitter, I don’t care what Jim Cramer says on CNBC because I know what works for me,” Monaco said.