Nate's website can be found at: InvestorsLive.com.

Tim: Hello, everybody and welcome back to TraderInterviews.com. Thanks for joining me for another interview. Today, I'm going to be speaking with Nate Michaud and he is a trader. We're going to talk to him obviously about the ways that he finds good opportunities and the time frames he uses and the markets he trades. The idea, of course, of all of these interviews is to get something that you can use in your own tradings and ways to think of the markets that you may not have considered in the past. So Nate, thanks very much for joining me on the phone today.

Nate: Thanks for inviting me.

Tim: All right. First of all, I always ask what kind of trader are you and what markets do you trade?

Nate: I'm a day trader. I tried to swing trade but I'm always selling out too early as soon as I see a profit. But by nature, I'm a day trader. I trade everything from OTCs all the way up to NASDAQs. Right now, recently, the last three to four months, the OTC market has been extremely hot so I've been trading a lot of that. But the rest is all short buys off the parabolics which is in the NASDAQ and overextended charts and longs of momentum.

Tim: Okay. So you're looking for it sounds like the stocks that have had a nice little run up that you think are overbought.

Nate: Yeah. Most of the time it's stocks that have been going up, let's just say, three or four days in a row of a consolidation level and I'm looking for an accelerated move. So I let them run up as long as they want to and I won't try to guess where the top is but once it starts to accelerate and, let's just say, it's been going up consecutively $0.50 to $1 at a time per day and then all of a sudden it pops $1.50 in the first 10 minutes of the trading day, I'll take that any day short after it's been up, let's just say, $5 in the last couple of days.

Tim: All right. So is there something then about a stock that has maybe a greater than average percentage of gainer for one day and it's been gaining for the last few days? What is it about that opening that you know it pops up quickly that makes you sense that at least a short-term top there?

Nate: I kind of put myself on the other side of the trade. If I were long, where would I be looking to sell? What would make me sell? And if, for example, a stock a while back it was okay. I'm just looking at the charts so it will be easier for me to kind of talk about it. In mid-September, it was decelerating -- it was going up about 10, 15 cents per day and all of a sudden it started going up 50 to 75 cents per day. And then the next morning it gapped up in an -- I put myself on the trader side that might be long. Where would they be looking to sell? If it's going to go from green to red, they're more likely to sell. So I just kind of join that panic, that profit-taking and short into that move.

Tim: So then do you have some filters on or some things in your software that tell you when certain stocks had made this move? Or are you working for the basket that you just watch those stocks?

Nate: Every night I do a daily scan which is searching for these stocks that are up at least 10% and then I kind of keep them on my watch list as they start to speed up. Those are my main watches, but other than that I use the high a day and the low a day list which you can get with Speed Trader, you can get it with Scott Trade, and a bunch of other like equity feed and things like that which -- it's just it's simple as that, a high a day monitor and a low a day monitor. And every time it hits a new high a day, it will be up on the screen, and then you can filter that for a certain volume parameters and 52-week highs and things like that. That's my main filter during the day.

Tim: Okay. A lot of traders have trouble shorting stocks. For whatever reason, it's just not their thing. It seems unnatural to them. It sounds like you've kind of made that your entire strategy.

Nate: Well, a lot of people try to guess where the top is and they're going into it too soon and then they end up forcing a secondary squeeze just because they're into it too early, and then that next pop is usually where I like to for all the premature shorters. But it's more about watching the stock, watching it trade, and you can always start into it. A lot of times I'll only go in half size and then once it either evens out or starts to break down I'll add into full size unless I have a stock that I've been watching for like a week or two and it's now ready to crack and it's intuition and I see it breaking down right in front of me.

Tim: Okay. Now, I know just thinking about his strategy in my own mind, if I saw it pop up right at the opening and it wasn't accompanied by real strong volume that might single something to me as well. Do you look at volume and all and contribute to that decision?

Nate: Yeah. Volume is a big thing to me. I mean I don't like to trade anything -- I would say under a million shares just because -- if you actually spread out a million shares over a day, it's kind of like watching the paint dry and it's not anything to get excited about. Like if you short it and it's only traded 50,000, 60,000, 70,000 shares, it could very easily jump up $0.50 to $1 against you because it's such a thin market. So I prefer things that are trading at least a million, two million, or much more shares. And a lot of the times, these moves that I've been talking about like the morning parabolics that I might short into are followed by -- like it's a powerful move into the close and then it's just carried through momentum. People are all excited about it. Everybody for some reason likes to buy green, likes to buy stuff that is moving up that's already up 10%, 15%, 25%. They don't like to buy it off the bottom. They all like to chase the move and I like to take advantage of those people that are chasing the moves.

Tim: And so the amateur traders get drawn into that higher highs and a lot of times we're told or newer traders are told, "Hey, don't fight the trend and so if you see something making higher highs, the chances are it's going to continue that way." What are some of the signals though that would say that it's reached some exhaustion level? Do you see certain things on smaller time frames or what do you like to put on a chart that might help you?

Nate: I always usually chart it on a three-month or a six-month right way. Most of the time, it's six-month. If I don't see it within a six-month time frame, I'll go back to a year. But yeah, I do look at the support and resistant levels and just kind of visuals that I get the night before and that all goes into my head and I remember it. That's the biggest thing about doing the homework the night before and becoming familiar with the tickers. Most of the time, I don't even know what the company does. It's more about just a ticker. It's not the company for me. Occasionally, it does help to know what sector it's in. For example, if it's a rare earth like REE, MCP, recently AVL, and a bunch of other stocks like that because rather than shorting into the first week they might be seen as a buying opportunity. And when a sector is hot, we all know that that can continue to squeeze, squeeze, squeeze, squeeze, squeeze. For example, if you take SHV the past month, it's literally gone from two months ago a buck, three months -- I mean three months ago $1 up to about $3 and it originally just hit a high around $11 per share. Well, other than that, I don't look at any of the other companies, what they do. I'm just looking at the chart, the momentum, and the volume behind it. Once it starts to die off, the momentum starts to fade. That's what I'm interested into joining on the short side.

Tim: So on a chart like that where it's been three months you've been seeing this happening, are you looking for declining volume on a daily basis or just intraday declining volume so that you know if you're going to short it intraday?

Nate: If I do a short intraday, if it's not in the morning like the parabolic type that I was talking about, it's a chart that's been up steadily over the last couple of days and then it flat lines into like, let's say, 2:00 p.m. and it starts to break down into like the final two hours. And then that's the interesting point for me where on the one-minute chart, the five-minute chart, wherever it may be, whatever trend line it was holding, whatever support it had for the prior five hours of the trading day, it breaks that. That's where I'd like to take it short.

Tim: And if you're doing this toward the end of the day, how are you kind of determining profits? Are you just out to make sure you're close before the end of the day or are you looking for a specific amount of profit?

Nate: Most of the time I'm happy like I'd find myself taking profits around a thousand bucks or more. I'm happy with that. If you nail a trade, there's no other job that you're going to make a thousand bucks in literally a couple of seconds or a couple of minutes and that's how I look at it and it adds up. And even if it's not a thousand bucks, even if it's green, you got the trade you're looking for, any time that the trend reverses and it's not doing exactly what you're thinking, I usually just take the profit. And the same thing if I'm wrong, it's very important to take losses and most of the traders that do fail are because they don't [0:09:39] [Audio gap] their trades turn into investments whether it's short or long and it turns into a hope strategy rather than a trading strategy.

Tim: So do you set stops in case you are wrong and it does continue on its path upward?

Nate: Mental. I don't have any hard stops unless I'm trading more than, let's say, five or six stocks and I just can't watch. The only time I'll put a hard stop on is if I'm in a partial position that I'm just trying to hold while I'm trading other things, but most everything that I do is mental. Sometimes I give it a little bit more leeway depending on how my day is doing or going. If I'm up a lot, I might give it a little bit more leeway just because I like the chart and I do think it's going to pan out. But if I'm just starting out my day and I'm wrong then I take it because I can always come back from a $500 loss or a $300 loss or something like that. When I let them get bigger than that then that's when you start out with a headache and you got to work yourself out of a hole.

Tim: And then I would imagine the strategy where you're looking for these parabolics in the morning to short are a lot more when there's a rowing bull market. Do you find it tougher to find those opportunities when the markets -- when the vast majority of the indexes are down?

Nate: It's not actually that much harder because what you do there is going back to the high a day list is you're looking at all the stocks that have just been hugging the high a day all day. And once they start to break down, let's say, the 2:00 or 3:00 p.m. fade into the close, that's when I start to get interested. And when the market started to shift into the recent bull market, it was a little bit harder because you anticipate the fade but then all of a sudden it starts to crank back toward the high a day and that just comes back to respecting a stop. You're wrong. Take it off. And that also turns into a long strategy. If you're wrong, it held support and retouch toward the high a day, that's a great long.

Tim: When you say "high a day," we're talking about the high of the day or a 52-week high? What do you mean?

Nate: No, just the high of the day.

Tim: Of a stock that is basically been going higher each day for the past three days?

Nate: That's more like for the shorting if you go back towards just like momentum longs which is another thing. I mean the only -- I don't only short. I do a lot of longs on OTC bulletin boards and I do a lot of longs on momentum stocks. And for example, a long on a NASDAQ would be -- it has a strong morning, let's say, 9:30 to 11:00 p.m. it shot up. I missed the move and then it pulled back and it held support say 50 cents off the highs. I'll watch that during the day and then 1:00, 2:00, 3:00 p.m. if it starts to perk off that support level, that's an interesting long to me because right away I know where I'm going to stop out if it breaks under the support that it was holding all day. So that's the hardest thing that traders have is okay, I'm in. Where do I stop out? And playing that way right away you have a stop in your head and you're either going to respect it or not.

Tim: Now, I would imagine that the toughest part about this is finding what you're going to trade when you have multiple opportunities and that's probably where all your homework comes into play and the value of spending time after market hours.

Nate: Yup, and you just have to understand that you're not going to be able to trade them all. I mean on any given day, I might see 20, 25 opportunities that I love to be part of, but it comes down to the five or six that I take and it's -- that's a lot of thing like traders have trouble kind of determining which ones to take. It's just focused on a handful or focus on however many you can without overwhelming yourself and you'll do a lot better.

Tim: So when you have those 25, what tells you to take one over the other? Is there something that a chart will tell you or do you feel better about that you can kind of explain?

Nate: I look for a couple of set-ups that I like. One is the parabolic and one is a pullback off the highs and I just scroll through. So I might only trade five or six of them but I've got 20 or 25 on watch, and I'll be scrolling through them. Through the day if I see it starting to set up then I might take a position into it and trade it from there while the other ones may never end up lining up during the rest of the day and it just -- you know, I had a great move, I missed it, but there was no trade there for me because it didn't come back and it didn't end up giving me a trade into the close.

Tim: For those momentum trades, do you use a momentum indicator like a MACD or something else?

Nate: No. I only use one-minute chart, which a lot of people don't understand, with volume and it's a candlestick chart. That's it. I mean I look at -- the main thing is at night I look at a six-month and a 12-month chart so I'm familiar with what it's coming off. I'm familiar with where my risk is. I know that if it's breaking off, say, 550 support and I see it hit my scanner during the day at 565 and it was red and it's going red to green, I know that my risk is at 550. I know that I need to position myself with whatever I'm okay with losing for 15 cents a share. If it's 565, it's set up a way that I'd like to long it. I just long it based on that risk and I size in accordingly.

Tim: And the 15 cents or wherever you would have the mental stop below that maybe a previous swing high or swing low, what is a comfortable amount of risk for you? Does it depend on the trade or depend on the size of your account as a percentage? What do you like to do?

Nate: I don't do any percentages. I don't do anything like that. For me I try to keep my losses between a max of 500 and 1,000 bucks because I can come back from that. After that -- I mean I do take losses when I do let them get bigger than $2,000 or $3,000 then I end up accelerating and turning into a much bigger loss and that's me breaking the loss. So when I go in, I try to position myself whether it's 1,000 shares, 1,500 shares, 5,000 shares, 10,000 shares and I look at how far I am off the support, what my risk is and I kind of think okay, $500, $1,000 where is that and I position myself depending on that.

Tim: Now, the OTC stocks that you trade, are some of those penny stocks below a dollar?

Nate: Oh, yeah, I mean I'll trade anything. I don't really trade a lot of sub-pennies but if a sub-penny is trading a million bucks, I'll trade it. But I'll trade anything from to $0.01 to $500 a share. But OTCs primarily are the newsletter place. A lot of the promoters -- the main ones that I focus on, I'm not going to list them all up obviously but I just go to Google. I search up any stocks, hot stocks, and I find out who is spending the most money on advertising and those are the ones that are continually reinvesting into their list. And with that comes the most volume, the most pop, the most potential gain just because they're continually making their list bigger and bigger and bigger and better. Yes, at the end they all end up dumping but it's just whether or not you're greedy or not. Most of the time, I can nail them at the dead bottom and I'll sell out for a quick 20% to 30% and then I'll watch them double or triple from there.

Tim: Interesting. So you're looking for the hot --

Nate: So I'm fortunate that I can't hold -- what's that?

Tim: You're looking for the hot penny stocks but not because you believe that they're truly hot but just because people are spending a ton of money trying to promote them and hype them up.

Nate: Exactly. It's a trading opportunity. Wherever there's momentum, I'll trade it. Like just this morning, STRA was $103 and then we go back to a 6-cent stock that trading $500 or a million dollars worth and it has a trend and it has momentum. So it doesn't matter where it is as long as it's got a good chart, it has momentum, it has volume. Liquidity is what matters for me.

Tim: Okay. Because some of those penny stocks are even hard to chart because of volume but as long as they I guess you stick to those million plus shares a day, you're pretty safe in getting some relatively regular chart patterns to appear going back.

Nate: Yeah. The only ones that -- for example, on OTCs that I would swing are ones that have a chart. They don't have to trade a million shares per day. If they have a history of like a trend and they're not, just like you said, an unchartable stock then I'll swing those. But the unchartable stocks are usually the momentum trades and those are the ones that are being pumped that you can take for a trade which you don't really need a lot of money and it's a great account builder for the small guys out there, but the most important part is taking the money and running. Most people try to average and average and average them. Everybody comes into the market that way. I did. You come in based on the newsletter. You want the hot tip, you buy it, and then you average down all the way to zero and you refund your account. It's five or six times before you finally realize, wait a minute, you can't invest on the OTC world.

Tim: So you're basically -- you flipped to the other side now and you realize what you're doing wrong and now you're taking the other side of those guys' trades basically.

Nate: Exactly. You just trade them and that's what it comes down to. People start putting the PR out there or -- I tell people once you're in a stock, you get in, you take the trade, and you're out. If you're in it and you're down on it and you start reading the PRs, once you know what the company does, you're in for the wrong reasons. That's kind of what I tell people and how to explain it because all it matters is the ticker and the volume in the OTC world.

Tim: The stocks that have momentum like an Apple or something along those, even though they're expensive, you'll take a look at those as well as long as they meet the criteria it sounds, you'll trade those too.

Nate: Yeah. Like I will -- like STRA this morning -- let me pull it up. Yeah, this morning it's down -- I think it was down $39 pre-market. It's an education stock so all the educational stocks were done pre-market as well. But it was down to about $111 premarket, but there's an opportunity there. It was down $39, $40 and I took a couple of hundred shares long. And after I saw it, basically the opposite of the parabolic move I was explaining, it basically went down from $120 to $111 extremely fast relative to the prior hour or two. So it was slowly coming down from $140 to $120-ish and then all of a sudden it just went straight down 10 bucks. So that was an opportunity to me, a parabolic move to downside and I took it long and then sold out. I think I got $117.50 which -- exactly, yeah. It doesn't matter how high it is or low it is. I'll trade it as long as there's an opportunity.

Tim: That's an interesting example because -- that would be a bit of a scary trade for me because I would think what if I am sketching a falling knife here? Was there something else about it besides that you just thought it was an overreaction that cued you in that this might be a good place to go long?

Nate: A lot of times it will come down and then all of a sudden there's a big volume bar and that usually symbolizes a bottom or a reversal. I'm very good at reversal plays. That's probably my best trait. But sometimes I am early but you just have to realize that and take it off and then it comes back down to respecting your stops and all that. STRA, for example, would bounce play. It was your odds are in your favor when it drops normally if it's going down a dollar or two at a time very slowly and all of a sudden it just takes $6, $7, or $10 hit. The odds are in your favor to go long and just take that quick correction if it bounced it back up and take your profits.

Tim: Because more than likely I would imagine that anybody who is long is going to sell quickly, that's going to contribute to that panic. And then, of course, like we've all had happened to us it reverses and goes the other way. You're just waiting for that bottom to happen.

Nate: Right because there are also stops. A lot of times if it breaks a support level, it's going to automatically trigger stops that people have set. Like if it's been holding 100, for example, the entire time, you've got your stops at it 100 bucks or 99 bucks. If all of a sudden it hits $100 or $99 and everybody stops trigger sells, then it's going to probably dump a couple of bucks just with all those stops triggering and then it will bounce back up. So it's just kind of taking advantage of that inflow of panic.

Tim: Now, how did you come across this and kind of settle on this as your strategy that worked for you? Did you try a lot of different things? It sound like you did. You mentioned a few times that you kind of went through the same evolution as other people. How did you kind of settle on this as your strategy?

Nate: I mean I started out writing a lot of OTCs that we would send out the mailers like the physical mailers that you'd go to your mailbox, you'd open up, and it would say, "Here's an investment opportunity. It could be the next buyout of Microsoft," or whatever. And in fact, in like 2003 and 2004, that was great. You could buy it, you could hold it, and it would literally be green every day for a month and then they'd start to accelerate a parabolic, you'd sell, and you'd be happy in that. But then I also held a couple too long and it would go all the way straight down. I started investing in some of these OTCs and lost my share. So obviously, that didn't work. And then I started trading Apple every day for like a year or two. But you get very burnt out doing the same stock every day. It was profitable but it just wasn't fun. So then I started trading the $5 to $10 stocks and that was a lot more fun. They jump around a lot more as long as they've got a volume I like it as I said. And then I kind of came across Muddy, which was the Green on the Screen which you had interviewed a while back who had a great concept of the high a day and low a day list and I never had used it before that. So then I kind of adopted my own strategy off of that idea and combined it with scans that I do at night, tickers that I'm familiar with, that I know I've run in the past and it's worked out since. It's more fun, it's less time-consuming, and it's a lot more profitable.

Tim: Is there anything you did along the way that maybe somebody listening who is kind of where you were in 2003, in 2004 that kind of really took your trading to the next level that allowed you to really start to make money consistently that you said, "If I would have done that a lot sooner, I would have been a lot better. This made more money faster"?

Nate: It just comes down to the point to -- like the first six months or so I was losing money the entire time. It was a complete trial and error. I still make mistakes to this day. I still break my rules and I still take losses because of that. But the main thing, the quickest thing is to be patient with entries. Let it set up. Don't just buy randomly. Don't be that person that's buying into the parabolic move in the morning that we take advantage off on the short side. Let the play set up. Let it come to you and trade something that you're familiar with. And a lot of people like to just be part of a play and like you were saying how do you narrow down the 20 or 25 stocks that you might be watching? That's a big problem for a lot of people. They don't want to be part of all 20 stocks that are moving and then they end up just buying whatever they want with no rhyme or reason behind that trade. And that's where losses come. Then the second this is averaging down. If you'd go into a position, if you're a half size or a third size, I don't consider it averaging down. I consider it like averaging in. So don't confuse that but I would not suggest averaging down because what happens when you average down is you basically double or triple -- let's say you double up your position, well if the stock goes down 20%, now you're losing double what you normally would have. If you triple up your position, all of a sudden the loss start getting on top of each other and you're then three times or six times what you would have been had you just taken the loss. And then the last thing is going back to what I said about just trading the tickers and not the companies. Once you start reading and believing, that's when you've gone too far and it's working against you. So just trade the stocks that have volume. If they dry up, sell them and move on.

Tim: Now, I like the idea of testing the waters a little bit before you get it. I mean I think that makes a lot of sense. You wouldn't just jump into a pool that you didn't know if it was boiling water or ice cold. You would test it first and worst thing is you get your big toe burnt, right? But you're not going to come out of the water with third degree burns all over your body. I don't know if that's a good analogy or not.

Nate: Exactly. And that's another thing too. Pay per trading, for example, for the new people that are just looking to get into it. It doesn't carry the emotion. It doesn't carry the -- you're actually in the trade. It's real money. It doesn't carry that with it but it's still good to test strategies and see if you're understanding it. Okay. I bought here and I'm going to sell here and go do the motions and see how you do. I think it's important to do that to just try it out before you jump into something especially if you don't have a lot of money. And then if it works out then start with a little bit of money and see how you're doing and crank it up from there and once you prove to yourself that you're successful in it.

Tim: All right. So we've got the morning parabolic. You talked about the momentum plays. Anything else? Is there another one that you like to look at in the morning that you could talk about?

Nate: Morning -- I mean the other thing -- it doesn't necessarily have to be morning or night but the red to green play or the green to red play. Basically, if the stock closes at 10:00 $9 is -- $9.99 is red, $10.01 is green. So if it's been a hot stock and, let's say, it ran up from $1 to $3 and it pulled back the last two days down to $2.20 and it closed at $2.20, so I'll be watching the morning for any -- say, it pulls back from the $2.20 to $2.10 and it consolidates, it's sideways, and it starts to perk up off that $2.10 support. Do you see the volume come in and it starts to cross towards red to green? That's a great play with a former runner and a former runner being the move we just saw. It went from $1 to $3, it pulled back, it consolidated, it found new support, and that moved up the support towards red to green, towards like the 250 type magnet is a great, great trade. That's one thing I look for all the time, any hot stock that was up the day before more than 10%. If it has a weak opening, I'll watch for the pullback, look for it to find some support, and then I'll for that perk off support and usually take that long for a red to green move. And you also bring in other traders that you know are scanning for stocks that are on the watch list that are going from red to green, that are green on the day, that have increased volume, and you'll find that when it crosses red to green, there's usually a volume spike with it in a pock.

Tim: It's kind of like everybody watching Fibonacci but is watching the scan of just a price for that day. That's interesting. So you're just capitalizing on that.

Nate: Yeah. And a lot of people they don't want to miss the next move. So everybody they start see it go green and everybody wants to buy the green because they're afraid of red, and as soon as it's green on the day, okay, all of a sudden it's a good stock again so everybody wants to pile it.

Tim: Right. Well, Nate, you've been very patient with all of my questions here. Talk about your website. You got a website where you talk about some of these things.

Nate: Yeah. I run InvestorsLive.com which is a daily scan that I put up. I also have one writer that does a daily -- like a morning recap and then the end of the trading day recap. His name is Dave. And that's just a good place to start to kind of get a feel for what's going on, any big acquisitions, any events, economic calendar, all that kind of stuff. That's all. Go on InvestorsLive.com. And then in January 2009, we just passed our two-year anniversary. InvestorsUnderground is our live chat room which we do it all real-time. We have bimonthly seminars every other Sunday. We usually start right around 8:00 p.m. and we go as late as people around asking questions. Everybody can send in questions. We prepare them. Sometimes we do PowerPoint. Sometimes we just prepare chart examples, visuals. We go over games, losses. I miss this trade. How could I have anticipated it better? I took a loss here. What did I do wrong? Muddy and myself and I've got a bunch of new moderators because I've kind of just voiced recently which in our chat room a voice is bold and color that are really adding to what the chat room offers. So that's it in a nutshell. And we offer a 14-day free trial.

Tim: Excellent. Well, we'll link to that in the transcripts here. We'll link to both of those sites. Nate, thanks very much for your time today. I appreciate you sharing some of your thoughts and some of your strategies. Thanks for being on the phone with me.

Nate: Thanks a lot for having me.