Stock Trading Strategies from a Trader Who Returned 382%

  • Matthew Caruso’s business career began in 2008.
  • During the crazy stock market action of 2020, he made a huge windfall.
  • He shared the top four trading strategies he used that he thought every beginner should know.

Stock trading isn’t just Matthew Caruso’s passion – it’s most of what he’s ever done professionally.

His first job out of college in 2008 was as a trader for the National Bank of Canada. He was also a professor at Concordia University, where he taught a finance course focused on technical analysis.

But since 2014, Caruso has been negotiating for himself. He is primarily a position trader who enters and exits stocks on a three-month average basis. Position traders combine fundamental business analysis with chart-based technical tools and often hold stocks for months or even years, as opposed to days or hours, which is what swing traders do.

While Caruso attributed much of what he learned to books and first-hand experience, he said being disciplined was the most important part of being a successful trader. Otherwise, he added, you would have a hard time sticking to a specific strategy.

His discipline paid off in 2020, when he took part in the American Investment Championshipan annual business competition that has already attracted big-name investors, such as Paul Tudor Jones, David Ryan and Mark Strome.

From January to July 2020, at the height of the historic pandemic


, Caruso returned 382%, showed the contest results and monthly copies of Caruso’s brokerage statements viewed by Insider. By comparison, the S&P 500 has gained 1% over this period and is up 42% from its pandemic low.

His equity positions included Quickly (up 381% over this period), Twilio (182%) and Pan American Money (50%).

In an interview with Insider, Caruso shared the four main factors that informed his trading strategy and what he thinks every beginner should know.

The 4 best strategies

Caruso’s first strategy tip: Don’t waste a lot of money. It may seem obvious, but most people underestimate the emotional impact trading can have, he said.

You don’t want to become emotionally attached to any particular action. And you have to be able to admit when you’re wrong. If you enter a position and the price starts falling, you should be comfortable exiting with a small loss, he added.

“It’s called loss asymmetry,” Caruso said. “So if you lose 10% on your portfolio and if you gain 11%, you can sort of break even. But if you lose 50% of your portfolio, you need a 100% gain to return to balance.”

If you can stick to this rule of thumb, you can limit your risk.

“I think the biggest advantage for any individual investor is that they can buy and sell stocks so easily,” Caruso said. “If you think of a pension fund trying to take a position, they have to buy for days or weeks at a time. So there’s no reason for an individual investor to take a big loss.”

The second strategy is knowing when to get out. Caruso predetermines a fixed percentage that he is willing to lose before even taking a position. And it’s an adaptive number, with a maximum amount set at around 5%.

As his profits increase, he reduces the percentage he is willing to lose. This way, he can continue to generate profits while remaining in the game.

“I think a major mistake that the vast majority of retail investors make is that they come into the market and only have part of the plan in place,” Caruso said. “So everybody usually thinks, ‘I need to know where I need to buy a stock.’ But that’s just beginning your journey, it would be the same as getting in a car and only caring about how to go straight.

The third strategy is to understand how to read the signals. When using technical analysis, Caruso said, don’t just look at it as lines on a chart. You want to go beyond the data and learn to interpret what high buying and selling volumes might mean.

The key indicator that Caruso recommended paying attention to was the 50-day moving average. Traders consider it the most important indicator to know if the trend of a security is moving in one direction or the other.

“If you had just said to yourself, ‘Look, as long as it stays above a 50-day moving average, I’m going to hold the stock,’ you’d be ahead by several hundred percent,” Caruso said. . .

The biggest advantage of using this signal is that if a stock starts to fall below and you take action, you are unlikely to find yourself in a stock that falls at a drastic rate of 80%, for example.

Finally, knowing how to pick winning stocks is a fundamental part of any trading strategy. Caruso focuses on two key data points: a company’s profits and its sales.

“You want to look for a stock that has either record earnings or record sales, and strong growth,” Caruso said.

High sales growth means a company has a product or service that customers really like, especially if it’s an all-time high in sales, Caruso said. An even better discovery is if it is a new business, as this means there is a higher chance of the business tapping into a new trend with significant future potential.

“And if that trend continues for six months, two years, three years, that’s when you get those 100%, 400%, 500% stock advances as the market pays for this company that continues to do so well. work,” Caruso said. .

When researching key companies, Caruso uses tools and paid websites to identify top performers. One of these tools is MarketSmith. But if you’re not a regular trader, these tools can get expensive.

There are more affordable options, such as Investors.comor even the free Finviz website, which offers analysis tools and filters.

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