Trading red to green move stocks is very popular among traders. Red green trading has to do with price crossing above the previous day’s close line. The previous day’s close line is a key area of support and resistance. As a result, trading red to green move stocks is a great place to set proper trading risk management, especially with penny stock trading. In the video below we explain this strategy in depth, how to profit from trading with penny stocks, as well as how to set proper risk management strategies when you do.
What Does Red and Green Move Mean in Stocks & How to Trade?
- Here’s what red and green moves mean in stocks and how to trade:
- Red means that a stock is trading below previous close price
- Green means that price is trading above previous close
- Previous close line is a very important support and resistance level
- Very popular indicator among day traders. Also, an important indicator for swing entries
- Traders might take a long trade entry in anticipation of a previous close break
- Some traders might wait for price to break above previous close and hold first
- Short traders might take a short position in anticipation of price failing previous close
- Bearish traders might wait for a failure signal then take a short position
- Going long: use candle close below previous close as stop. Short: use candle close above as stop
1. Basics of Red to Green Move Stocks
If a stock crosses above the previous day’s close then that’s a popular area to set a stop loss, because if the price falls back below the previous day’s close then that’s showing potential weakness. On the other hand, if a stock crosses above the previous day’s close and holds then that might be a potential sign of strength and continuation. This post will be highlighting red to green move stocks. Need a good stock scanner to find the best trading setups? We’d recommend checking out Trade Ideas. Take our day trading course.
2. Risk Management With Red to Green Move Stocks
It’s always important to do your proper technical analysis of stocks and map out support and resistance lines before entering into any trades on red to green move stocks. Watch our video on how to draw support and resistance lines if you need more help. The Ichimoku cloud is also a very helpful indicator when determining support and resistance levels and is also popular with options trading strategies. The reverse is also true with red green moves. The process is the same but inverse. If you’re looking to short a stock, which is a popular trading penny stocks strategy, then you would use the previous days’ close as overhead resistance and as your stop loss if the price rises back above that level.
Do You Buy Red or Green Stocks?
- Here’s when you might buy red or green stocks:
- Green is potentially bullish and that’s when traders might take long position
- Red is potentially bearish and when traders might take a short position
- When price goes red to green many traders take a long position
- When price goes green to red that’s when the short traders come in
- Going long traders use close below previous close as stop
- Going short traders use close above previous close as stop
- Candlestick patterns will give you the clues needed to buy and sell
- Reversal patterns are very helpful for early buy or sell signals
- Risk management is key when buying and selling
1. Red Green Trading Done Right
So, you’d watch to see if prices stay below the previous close and ride it down. If the price reverses and starts to climb back over the previous close then that’s a potential warning sign that the trend is reversing and might be a good place to cover your position. Scalping stocks is a lot easier when you apply the red green strategy. We teach how to trade red green moves live in our stock trading rooms.
The orange dotted line in the picture above is the previous day’s close line that we added into ThinkorSwim. It’s a special script that has to be added to the TOS platform.It’s easy to add so watch our video on how to set this up. Watch – Previous Day Close Indicator ThinkorSwim.
What Is Open Range Breakout Strategy?
- How to trade an open range breakout strategy:
- Map out premarket support and resistance levels of gapping stocks
- Identify the range that price action is trading in
- Check for premarket stock volume and identify bullish or bearish patterns
- At open, watch for huge bullish and bearish volume spikes
- Some long traders look to get in before price breaks out of the top of range
- Other long traders will wait for breakout and back test then take long position
- Some short traders look to get in before price breaks down from the bottom of range
- Other short traders will wait for breakdown and back test then take short
- You can use a candlestick close above and below range as a stop
The Bottom Line
Remember that traders are creatures of habit and they pay very close attention to both red to green move stocks as well as green to red moves.
Just like traders watch stock charts, candlesticks, patterns, moving average lines, trend lines, and so on, the red green trading strategy is another weapon in their arsenal. As we are huge fans of technical analysis, we use the BEST stock charting program on the planet for the retail trader. We are big fans of TrendSpider too, a very helpful program for learning candlestick pattern recognition.
Using the information above puts big money tools at your disposal and we recommend trying TrendSpider for top-of-the-line automated analysis with dynamic alerts.