US Investing Championship contender Trent McGraw hauled in a 104.3% return in just 8 months. He shares his two favorite trading setups that've led to his king-size returns.

  • After a tip from a reputable family member went awry, Trent McGraw — a 2020 US Investing Championship hopeful — swore he was done with the stock market. That didn't last long.
  • A chance meeting served as the catalyst for McGraw's entrance back into the market.
  • He shares the two trading setups that have contributed the lion's share of his returns. 
  • McGraw garnered a 104.3% return through the first eight months of 2020. He currently holds eighth place in the 2020 US Investing Championship.
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Trent McGraw, a 2020 US Investing Championship hopeful, had just about the worst introduction to the stock market imaginable.

"We had a family member that was telling my wife and I that we absolutely have to be in stocks," he told Business Insider. "And it was just before the 2008 GFC."

At the time, McGraw knew nothing about stocks. He had never had an interest in the market.

Still, despite McGraw's initial apprehensions, he knew the relative who bestowed the advice was a reputable member of the financial industry in Australia and had his family's best-interest in mind. McGraw trusted his suggestions would prove favorable. 

Shortly thereafter, McGraw and his wife ponied up about $50,000 to invest in a group of stocks the family member had suggested. As a telltale sign of the times, McGraw's bank matched his $50,000 with $50,000 of margin.

Then it all came crashing down. 

"And then a week later we were taking a nice, well-owned holiday and the market crashed," he said. "I'll never forget getting call after call after call from our bank saying 'You know we need you to top up your account; You're getting margin calls.' And at that point again, I had no understanding … I didn't even know what a margin call was at that point."

McGraw wound up pulling out of his investments at a "significant loss," and swore he'd never get involved in markets again.

But that only lasted a short while.

In his early thirties, McGraw found himself semi-retired after building up and subsequently exiting his business in the construction industry. With a load of newfound free time on his hands, he began investing in startups. 

"One of them was Equity Story started by the man who ended being my technical analysis mentor, David Tildesley," he said. "In Australia, David is considered one of the best technical analysts there is. I have been lucky enough to sit alongside him like a sponge over the past five years."

That serendipitous encounter would change McGraw's life forever.

Today, McGraw is trouncing the stock market relying heavily on the lessons that Tildesley instilled in him. Throughout the first eight months of 2020, his performance is a staggering 104.3%, currently landing him the eighth spot in the 2020 US Investing Championship. 

Here's how he's doing it.

McGraw's two favorite setups

Boiled down, McGraw's trading approach can be described simply as: technicals-first; fundamentals-second; the trend is your friend.

If a stock meets McGraw's technical criteria — which will be dissected shortly — he'll consult the fundamentals in order to confirm his thesis. Metrics like earnings-per-share, analyst consensus, and future growth prospects are all vetted regardless of how good the technical setup may look. If the fundamental backdrop is deemed insufficient, it's likely McGraw will set his sights elsewhere.

"We only have four technical indicators we use, and it's all about essentially buying momentum," he said. "We call it K.I.S.S.; you know, keep it simple, stupid." 

He continued: "It's just a really simple process."

Those aforementioned technical indicators consist of four exponential moving averages that McGraw leans on to discern trends and pick his buy/sell points. McGraw would not relay the timetables associated with each. 

As general rules of thumb, he's usually only holding four to six stocks at any given time for an average of 30 days. What's more, in order to control his risk, he'll scale into positions and cut out of positions in one fell swoop. His maximum risk tolerance resides around 3% on any given trade.

Although that moving-average-centric strategy had been successful in the past, McGraw shifted gears to focus on two setups in order to try and take home the gold in this year's US Investing Championship. The names associated with each are well-suited.

1. "The Walking Dead"

In this scenario, McGraw likes to see a stock consolidate for at least 12 months — or be left for dead, if you will. Then, out of the blue, the stock will rise from the "dead" — like a zombie — on a "big, green, weekly candle on volume." 

That breakout will get McGraw's attention, but he's still not ready to buy just yet.

In order for him to pull the trigger on a purchase, McGraw needs to see the stock come back and retest it's 100-week exponential moving average. If the stock successfully turns up again after retesting, he's in.

2. "Caddyshack"

In this instance, McGraw likes to see a stock reach a new high and then pull back. Then, for at least 12 months, he likes to see the stock in focus continually retest that high and try to break through — similar to a gopher trying to pop it's head out, unsuccessfully, on different parts of a golf course. Eventually, if a stock breaks through that high water mark on heavy volume, McGraw will look to purchase on the breakout.

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