How does the RCT pattern help you build a structured trade plan?
The RCT pattern forms when a stock spikes fast, then pulls back to form a red candle on the 5-minute timeframe. The red candle’s open and close prices are the entry and stop levels. That leaves only the target price to complete the trade plan.
Using the RCT means there is zero mystery for two-thirds of your trade plan. Today we’ll look at how to use those numbers, along with technical analysis, to find the target.
The Big Picture
In part 1 we looked at how to recognize the RCT pattern. Now let’s use it to build a structured trade plan.
What’s Necessary for a Structured Trade Plan?
A full trade plan includes three parts:
- Entry
- Stop loss
- Target
I like to keep things simple, so I’ll give you two ways to think about the target for an RCT trade.
Let’s revisit the stock from part 1: CNS Pharmaceuticals Inc. (NASDAQ: CNSP).
The RCT entry was at $7.93 with a stop loss at $7.59. On the chart below, I’ve added the Oracle support & resistance lines to show potential exits.
Source StocksToTrade CNSP, 5/4/26 5-min candle premarket RCT trade plan using Oracle S&R
What if you don’t use Oracle?
How to find the target price using reward-to-risk.
In this case, the RCT candle tells us that the risk is 34 cents a share:
$7.93 entry – $7.59 stop = $0.34 risk.
On the chart below, I’ve added yellow lines showing 2:1, 3:1, and 4:1 reward-to-risk:
Source StocksToTrade CNSP 5/4/26, RCT trade plan using risk vs reward for exit targets
Notice that the major resistance on the first chart is very close to the 4:1 reward-to-risk level on the second. It doesn’t get much clearer than that.
If you use StocksToTrade (and you should) you have access to Oracle. Those resistance lines are gold. They give you a clear target.
If you don’t use StocksToTrade, use the basic reward-to-risk levels.
Either way you have a clear, structured trade plan using the RCT pattern.
My Take
If you are struggling to be profitable, if you always seem to give back all of your gains, it’s because your trade plans don’t look like the above. Know your entry. Know your stop loss. Know your target.
The RCT pattern gives you all the numbers you need to create a structured trade plan. Fast.
Watchlist
Here’s another example of the RCT pattern. 3 E Network Technology Group Ltd (NASDAQ: MASK) checked all the boxes in after-hours on May 4:
- News: the company signed a $1.3M convertible note agreement with a private investor.
- A near vertical move: MASK spiked from $1.45 to $2.24 (+54.5%) in 10 minutes before the red 5-minute candle
- Low float: 605.11k
- High volume: CNSP traded 1.8 million shares in 10 minutes. Its 60-day average is 3.2 million shares.
Now, let’s use the RCT pattern and Oracle major resistance to create a structured trade plan:
Entry: $2.13.
Risk: $2.11.
Target: $2.37 – Oracle major resistance
Talk about a beautiful potential trade.
Check your inbox tomorrow for part 3 of How To Trade the RCT Pattern: Risk First, Profits Second
On My Radar
- Stripe created a new job: Forward Deployed AI Accelerator I urge you to become your own forward deployed AI accelerator to extract usable data from your trade journal.
- Michael Bury dumped his Gamestop (NASDAQ: GME) after Ryan Cohen bid on eBay (NASDAQ: EBAY). Guess he agrees the whole thing smells like a bagholder special.
- Another trading book to add to your collection: “Trend Following” by Michael W. Covel