Textbook Trading is the foundation course for the Investors Underground chatroom run by Nathan Michaud (aka InvestorsLive). In this review we’ll give you an overview of the course, go over the content in each chapter, and give you our list of pros and cons so you can decide if you want to buy it. We also have links to some discounted pricing.
Textbook Trading Overview
Investors Underground is one of the most popular stock trading rooms on the internet with nearly 1000 members most days (see our review of the Investors Underground Trading Room), including several famous millionaire traders such as Tim Grittani. But it will be difficult to be successful in the chatroom if you don’t understand the methodology most traders in the room are using.
Nathan Michaud created two DVDs to help communicate his methodology and trading style to his chatroom subscribers. His first DVD is called Textbook Trading and it covers the basics of his methodology, including the setups he commonly uses. The second DVD is Tandem Trader, which is basically several hours of live trading with Nathan as he executes the setups from TextBook Trading and walks viewers through his thought process as his chart sets up and the trade progresses.
Textbook Trading has over 8 hours of video instruction divided into 11 chapters. The content includes information about Nathan’s computer setup, his terminology (much of which is unique to the IU chatroom), IU’s primary technical setups, information on which brokers to use, and instruction on how to do daily preparation.
Chapter Breakdown
Textbook Trading Chapters
Purpose and History
In the first chapter, Nathan gives some history about himself and goes over the basics of his strategy and approach to the markets. He started trading in 2003 when he was in college and had a lot of early success. He claims to make hundreds of thousands of dollars per year (as of the making of the DVD). He believes in adopting a strategy that is scalable, that builds an account slowly over time, and that can profit in bull and bear markets.
He also talks about many of his trading mistakes and goes over the reasons he believes 90% of traders lose which include revenge trading and focusing too much on the money instead of following your system.
Setup and Terminology
Nathan relates why he started blogging and how he started Investors Underground. Mr. Michaud started verifying his trades on profit.ly in 2010, and that helped jump-start his chatroom’s popularity.
His strategy is built around creating income everyday, using a standard risk/reward of 3:1, and being out of most trades by the end of the day. His trading computer is an AlienWare top-of-the-line gaming desktop PC which he uses with a GeekDesk adjustable height desk (I also have a GeekDesk and I LOVE it).
Nate then goes over the basics of going long and short, different types of broker orders, margin trading, short selling issues, level 2, and various terms that are used in his chatroom.
Charting and TA
In chapter 3, Nate spends some time explaining how supply and demand causes prices to move and how events can influence the supply/demand dynamic. He then spends some time discussing factors that can attract traders and create and audience for a particular stock and how to take advantage of that. There is also some discussion on the importance of multiple time-frames and how to use them, and other variables that increase your chances of catching a big move.
Textbook Trading Screenshot
ABCD and Long Trades
This is the first chapter that really gets into the setups and the key characteristics to watch for. If you spend much time in the Investors Underground chatroom, you will probably notice that ABCD patterns are one of the most popular trades going on. ABCD might not be the best name for this pattern because it can easily be confused with an ABC pattern which is a very well-known technical pattern that many traders talk about. ABCD just seems to be a name that Nate came up with to refer to a pullback trade with some specific characteristics such as ‘gearing and perking’. ‘Gearing’ is one of the common words in IU chat that I haven’t heard anywhere else.
Nate gives some chart examples that demonstrate a certain supply/demand dynamic that he looks for that increases the chances of a successful breakout. He also goes over certain kinds of support and resistance levels and how to use them to get in and out of trades.
Red/Green and Long Trades
Chapter 5 is an interesting chapter that has a lot of unique information that is particular to the style of trades in IU chat. Nate explains what a red to green move is, and how to anticipate and take advantage of it. He also goes over some common patterns he sees in the morning session of the US stock market such as a ‘morning washout’. At the end of the chapter is a section on ‘chasing’ and how to know when to chase and when to let the stock go and accept that you missed the move.
Shorts and Over Extensions
After two chapters on bullish setups, the course now goes into a discussion of short patterns. These setups seem to be a little more advanced and have more caveats. Nate spends a good amount of time trying to clarify what conditions are needed for a good short setup, including what to look for on the daily chart and what makes a chart ‘over-extended’. He goes through several charts to point out the price action that is important to recognize and what to do when a short doesn’t work out as expected. There’s also some discussion of scaling-in.
Morning Emotion and Faders
The first part of this chapter focuses on identifying and taking advantage of certain patterns that occur in the morning session of the US stock market. In the latter part of the chapter, Nate discusses some trades to look for near the end of the day and goes over some subtle clues to watch for that can tell you whether an extended move in going to continue or reverse.
There are about 5 different setups that are discussed in this chapter, and they have many similarities so this is a chapter that may need to be reviewed a few times.
Multiple Timeframe Breakout
OTC Trading
OTC stands for over-the-counter. The focus of this chapter is on stocks that are smaller and aren’t traded on the main exchanges. Many of these stocks are considered ‘penny stocks’ even though the share price is often $1 to $10. There are 6 different setups that Nate goes over, including ‘pump and dumps’ which are stocks that are artificially high because they are being promoted by some marketing service. Shorting pump and dumps used to be an easy way to make money, and I believe this is how Timothy Sykes and Tim Grittani made a lot of their first $1 milllion dollars trading. But due to tougher SEC enforcement, it seems these pump and dumps are not nearly as prevalent as they used to be.
Brokers
Many new traders with small accounts may run into problems being able to trade a large enough size to make reasonable profits, especially if they have less than 25k and get hit by the pattern day trader rule. In this section, Nate discusses some strategies for dealing with the pattern day trader rule including swing trading, breaking up your funds, and proprietary trading firms. Also, there is a review of several brokers that work better with the IU style of trading because the brokers make it easier to borrow shares to short, especially OTC stocks. Additionally, Nate spends some time showing how to use the UI of some of his favorite trading platforms.
Lastly, Investors Underground has worked out some special deals with the brokers they recommend for those who have purchased the Textbook Trading DVD.
Daily Routine
This is a very practical chapter where Nathan describes exactly what he does in the morning to get ready for the trading day. He goes over how he uses his scans and watchlists and some of things he looks for during the trading day.
There are also several general trading tips mentioned relating to the amount of open positions to have at one time, when to take breaks, stop losses, sector rotation, and a few other things.
Websites and Homework
This is an important chapter that focuses on how to prepare for the next trading day and what websites to use to get the right information. There is a discussion of how to use Twitter, and a few other sites followed by a large section on scanning. Nathan shows some of the exact parameters he uses for some of his scans, and how he selects stocks from the scans to add to his watchlist. Also, there is a short discussion on how to trade stocks that are under a short sale restriction.
Pros and Cons
Pros
- The course is professionally produced
- Textbook Trading gives viewers a good sense of Nathan Michaud’s trading style and methodology
- The course communicates the essential information you need to know to get value from the chatroom. Without Textbook Trading the chatroom would be pretty confusing for most traders.
- The content is basic enough to be understood by new traders, but has enough depth to give value to more experienced traders
- With 8-9 hours of content, the information on the DVD can be absorbed in a few days which should allow traders to get involved and up to speed in the chatroom relatively quickly
- The information in the DVD can be the basis of a trading methodology even if you don’t subscribe to the Investors Underground service.
- Unlike many trading courses, the Textbook Trading setups are not based on some combination of technical indicators. Rather, the setups Nathan uses are based on well understood concepts in technical analysis. Importantly, Nathan defines the higher time-frame context which makes the setups valid; when the higher time-frame price action is not favorable the patterns on lower time-frame charts are much less likely to work as expected.
Cons
- Nathan does attempt to explain his unique lingo on the DVD (there is also a terminology page on the Investors Underground site with additional explanations), but he doesn’t go through all of the terms he uses (like ‘stuff move’) and so we were still confused by his language in the chatroom sometimes.
- Textbook Trading is not a comprehensive course on trading and technical analysis. For example, Nathan doesn’t really cover risk management, position sizing, trading psychology, etc. He also doesn’t discuss many of the common technical patterns (head and shoulders, etc.) that you often read about.
- Ideally, there would be more example trades for each setup. But you can buy Tandem Trader if you need more examples of how to trade each setup.
Conclusion
Overall, Textbook Trading does a good job of presenting a robust and profitable trading methodology in a relatively easy to understand way that can be applied fairly quickly, especially if you take full advantage of the Investors Underground chat room. Although the content is fairly straight forward, it is also pretty dense, and so most traders will probably need to go through the DVD 2 or 3 times and take notes to really get a firm grasp of everything.
Textbook Trading can be bought separately, or in various bundles with Tandem Trader and Investors Underground subscriptions. Significant discounts should be available at the link below ($297 for Textbook Trading instead of the usual $997). But you may want to view the deals on the main pricing page.