Red to green move - Learn how to trade it the right way (2024)

July 23, 2021

Is learning the red to green move really necessary fro day traders?

Starting your stock day trading journey without a plan or strategy is the quickest way to run your account into a brick wall. If you researched the financial markets and equipped yourself with the right knowledge of building a successful trading career, you would know that trading without a plan is not a wise idea. You may be lucky to catch some moves and win some trades at first but rest assured it won’t take long before your account enters an unpleasant free fall.

Having mentioned that, you have probably heard pro day traders and gurus in the financial markets mention and discuss the red to green move trading strategy. If you haven’t, you would have eventually and interestingly you just did. Now that you have crossed paths with this often spoken-about day trading strategy, one question that’s probably racing through your mind is, what is this red to green move day trading strategy and why is it such a big deal?

What is the red to green day trading strategy?

The red to green move is used to describe a trading scenario where a high volume stock that opened in the red at market open (in the morning) closes at a price that is higher than the previous day’s closing price the keywords are “break previous day’s closing price”. When this market condition plays out, it forms what is known as the red to green move or red to green break out move.

Now that you have understood what the red to green move is all about, the next big question is how does one trade red to green move in the stock market?

There are two ways you can leverage this move in your day trading strategy. You can either buy stocks before a red to green move or buy after the red to green break out. Let’s take a closer look at both trading strategies.

Strategy 1: Buying before a red to green move

Buying stocks or any other financial assets/instruments based on this strategy is best implemented when the market is bullish and is in a strong uptrend. The reason why buying before the red to green move is best executed in a market that’s advancing north full throttle is that trading in the direction of the trend significantly increases the chances of your strategy succeeding.

The idea is to buy into the trade in the early hours of the trading day before the stock goes from red to green. That way, you would have “bought the dip” as it is said in the day trading lingua. However, you are not just going to jump on any stock because you think its price or value is at its lowest from the previous day. It’s always best to make an informed decision by analyzing the market trends and momentum. Then, you should also use other indicators to confirm what the charts are saying. That way, you can conveniently tell the trend (if the market is in an uptrend) and avoid false breakouts. Speaking of false breakouts, it is not unusual for stocks to dip for some time, up to a quarter or halfway through the previous candles before going back to their initial trajectory upwards. You should beware of such patterns and watch out for such behaviors with the stocks you have in mind before executing your order.

When you successfully spot reliable stocks that check all the boxes for buying before the red to green move and they satisfy the conditions of your trading strategy, don’t hesitate to take the trade. While you are at it, here are tips to guide you on how to use this strategy.

Top tips for buying stocks before the red to green move

As we mentioned earlier, always ensure that the trend is up and the momentum is strong in that direction.
Check to see if the stock has a history of following this pattern. You can start by studying previous price actions.
Keep an eye out for the previous day’s candle. It should be in an uptrend formation. However, it’s not unusual for the previous day’s candle to be down for some time before picking up steam.
Remember to check the volume and be on the lookout for strong bullish volume patterns.
While studying the previous day’s candle, have it in mind that the current candle must not dip or close below the previous day’s candle. It’s okay for the candle to dip up to 50% of the previous day’s candle. If it dips further, it’s a no-no!
It’s always best to buy the morning dip after getting confirmation about the price action and strong indications that the price will reverse as the day progresses. Having mentioned that, you need to be careful with where you are placing your stop loss. If you are confident in your analysis and you don’t mind tingling your risk appetite, you can place your stop loss right below the previous candles. However, the previous candle must have exhibited signs of strength. You want the candle running out of steam and coming back to stop you out.

Last but not least, be mindful of happenings at key levels of support and resistance on different time frames (from higher time frames to lower) before taking any decision. Most times, the best entry decisions are made after carefully analyzing price action at key supply and demand levels.

Strategy 2: Buying after the red to green move

If you miss out on buying before the red to green move plays out, you can always enter the market after the red to green move breakout.While this may present you with another golden opportunity to enter the market, you must be careful not to be caught in fake breakouts, which can happen quite often in penny stocks. To save yourself from getting caught on the wrong side of the swing, here is atip to help you escape getting caught in the woods. Be sure to confirm the breakout with market volume. Usually, high volume indicates after a breakout indicates high demand. However, to increase your chances and odds of making the most profitable entry, buy after a pullback and retest a key support area after the first breakout.

Tips on how to buy stocks after the red to green move

Let’s talk about some tips that can help you, first, make sure to always find stocks that fit the right parameters. Taking a long position on a trade can be exciting but you must always make sure you look at the previous close, resistance levels, the previous days’ all-time high and all-time lows, and any important support lines. Using that information, you will be able to formulate a plan that will help you not lose money and keep your risk management in check. Always make sure that before you day trade, always check the price action, and if the stock opens flat, that can be a sign that the support level may brake at some time during the day and the red to green move may never happen. This may be a good time to look at the resistance level and you may possibly consider a short position or simply move on to other stocks.

The tips we will be sharing are almost similar to those of buying before the red to green move happens. First, ensure that the overall trend is up on higher time frames such as on the weekly and on the daily. Strong volume patterns in the direction of the trend are a good sign and are on the lookout for retests at key support areas you have higher chances of winning your trades there. While you are at it, don’t forget to make use of trailing stop loss to protect yourself from sudden changes in market trends. Trailing stop loss also saves you from a catastrophic loss if your analysis is wrong, remember risk management is key. The most important thing is that you want to ensure you don’t enter a bad trade that will cause your account to suffer a devastating hit or get run aground.

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