How the RCT Pattern Helps New Traders

One reason I love the RCT pattern is that a new trader can learn it fast.

The RCT pattern has a lot to offer new traders. The vertical move followed by a red 5-minute candle is easy to recognize. The open and close price of the red candle make creating a trade plan easy. And you don’t have to be a full time trader to take advantage of the setup.

The Big Picture

One of the most common questions on my Sunday Market Brief livestream is “What’s the number one stock for tomorrow morning?”

Now, I don’t have a crystal ball and I don’t play guessing games.

No real day trader tries to guess the next day’s big movers. Anyone who says “I know what the biggest mover tomorrow is going to be” is full of BS.

So, the next question is “What do we trade tomorrow?” That’s a good question.

Remember this: The tickers change but the patterns don’t.

Here’s how the RCT pattern can help new traders.

1. The RCT is easy to recognize. If you check the Top % Gainers scan premarket, you’ll likely find an RCT setting up. Not every day. But it would surprise me if you didn’t find three or four a week. Remember to use the 5-minute candle. For review, read my post on how to recognize the RCT pattern.
2. There’s no guessing games. If you’re a new trader, the RCT removes any doubt about your entry and stop-loss prices.
3. You can set your position size fast. Again, no guessing games. You know what you’re willing to lose. That’s your number. Your position size is a simple formula: your number divided by the risk set by the red candle.

There’s one more way the RCT pattern helps new traders.

The RCT pattern often happens outside of regular working hours.

I love the RCT pattern for new traders because it works so well in premarket and after-hours trading. If you’re learning to trade while you work a regular job, you will love the RCT.

With modern trading software, you don’t have to sit in front of the screen all day. You can set alerts, stop losses, and sell orders and let the trade play out.

My Take

When I first started trading I was running a computer business. I couldn’t spend all day in front of the computer. I know many of you reading this are in the same position. The RCT pattern is ideal for anyone who wants to trade a few hours a day before or after work.

Watchlist

Another day, another RCT setup. Yesterday (May 7) Atara Biotherapeutics Inc. (NASDAQ: ATRA) was a premarket RCT.

ATRA was another RCT box checker:

• News: the company issued a press release with a regulatory update.
• Near vertical move: ATRA ran from $5.31 to $8.97 in 15-minutes before setting the RCT.
• Low float: 5.01M
• High volume: ATRA traded 5.27M shares in 15 minutes. The 60-day average is only 231.5K

Now, you likely would’ve got stopped out twice if you traded the pattern. But if you were patient and stuck with it, the third time was the charm.

The RCT was in at $8.396 x $8.20. Even if you’d got stopped out you would have only lost 20 cents a share. And if you caught the move between 12:10-12:20 p.m. you could have made $2 per share. That’s 10:1 reward-to-risk.

On My Radar

• More on the unlimited appetite for compute: Anthropic signed a deal to use Colossus 1 which has 220,000 Nvidia GPUs
• Glass, toilets and AI? A rising tide truly does lift all boats.
• Paul Tudor Jones is bullish AI for the next couple of years. I’m bullish on what AI has to offer. We live in the most incredible time to be alive.