Yesterday one of my favorite Monday morning patterns played out in an earnings winner…
It was a repeatable pattern that you can prepare for in advance.
I’ll walk you through the three essential criteria you need to watch for to capitalize on this setup…
Once you learn these, you’ll be ahead of the game and ready to pounce on opportunities like a pro.
I’ll also show you a real-life example of these criteria in action, complete with a picture-perfect chart pattern.
By understanding and applying these principles, you can be prepared for any trading day.
We could even see this stock play out the same pattern again tomorrow…
The Number One Pattern For Earnings Winners
The red-to-green pattern is a powerful strategy for trading swing setups, and I’m excited to break it down for you.
It’s a setup where a strong stock opens lower (in the red) but then turns around and goes higher (in the green).
This reversal signals potential strength and can create buying momentum that can spark multi-day runners.
Applying the Pattern
Now, this pattern isn’t just for any stock … I find it’s most effective with what we call “real stocks.”
Companies with actual revenue and established businesses. That’s why I love it for earnings winners. But earnings winners can also show up in lower-priced stocks like the one I’ll show you in my example…
First, let’s go over how you can prepare for the pattern in advance…
Identifying Criteria
To trade the red-to-green pattern, we need to look for three criteria:
- Closing at or Around High of the Day: The stock should close near its highest point on the previous day. This indicates strong buying pressure and potential for further gains.
- Breakout Potential: Look for stocks breaking out to multi-week, multi-month, or even all-time highs. This shows momentum and increased interest from traders.
- Hot Sector Stocks: Focus on sectors that are trending hot. These sectors attract more attention and can fuel rapid price spikes and multi-day runs.
A Real-Life Example: Cardiff Oncology, Inc. (NASDAQ: CRDF)
CRDF announced earnings after hours last Thursday. It spiked on the news and then on Friday it closed at a new 52-week high. That means it was a strong candidate for a red-to-green move on Monday.
It’s a hot-sector biotech company that focuses on cancer — always a hot topic. And it closed at 52-week highs and near its daily high. So it met all the criteria for the red-to-green pattern.
Plus, it has an earnings catalyst. Something that can cause stocks to have big moves.
You can see how it crossed the dotted yellow line (the previous day’s close) on Monday morning and had a 32% move.
CRDF chart: 3-day, 5-minute candle — courtesy of StocksToTrade.com
The best part about this pattern is that it allows traders to prepare in advance.
By identifying stocks with these criteria and a catalyst over the weekend, you can be ready to act when the market opens on Monday.
And often when we see this pattern spark big moves, we can look for it again…
If CRDF closes near its highs again and opens weak — it’s a watch for the red-to-green pattern.
Look for this pattern again this morning and get trade ideas and plans with me every morning in my live Pre-Market Prep webinars.
The only way to get in is to be a Daily Income Trader member — learn all about it here.
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade