What is the RCT (Red Candle Theory) Pattern?
The RCT pattern is a premarket and after-hours trading setup using the 5-minute candle. First, the stock makes a straight vertical move. Then it pulls back to form a red candle. That red candle defines a clear structure to identify an entry and a stop loss.
The edge comes from the fact that the RCT pattern gives you a well-defined trade plan before you enter the trade. And it happens almost every day.
Today I’ll share how to recognize the RCT in real time with a great example from May 4. First, my friend Ben Sturgill is running a two-day options bootcamp starting on May 12
The bootcamp is free of charge but you have to preregister here.
The Big Picture
The RCT is one of my core patterns. If you trade premarket or after-hours, I don’t know why you’d trade anything else.
How to Recognize the RCT Pattern In Real-Time
This walkthrough will help you find RCT setups as they happen.
Find stocks making sharp vertical moves in premarket or after-hours trading.
Tip: create a scan that alerts you to big moves over a short time-frame. StocksToTrade’s built-in biggest % gainers scan is ideal in premarket. It’s even more powerful if you create a custom scan to find stocks that meet all the criteria.
Check for a news catalyst.
The more legit the news the better. That said, even a fluff press release can help set up an RCT pattern trade. If there’s no news, be wary. Stocks that spike in premarket with no news are often chat pumps and best to avoid. I’ll go more into pitfalls in part 5 of this series, so watch your inbox.
Look at the float and volume.
The RCT pattern works most consistently with low-float stocks trading high volume. Keep in mind that in premarket trading, volume is often much lower than after-hours trading. That’s not an excuse to trade what looks like an RCT trading too low volume. See the example in the Watchlist section below.
What’s considered high volume? Start by comparing the volume you see on the chart to the average daily volume for the stock. I’ll talk more about volume throughout the 5-part RCT series.
Wait for the first red 5-minute candle after the vertical move.
That is the RCT pattern in action. Tomorrow I’ll share how to use it to plan your trade.
My Take
The RCT is the only pattern I recommend trading in premarket and after-hours. RCT is the only pattern I trade in premarket or after-hours because of the consistency and the risk to reward.
Watchlist
Let’s look at an RCT pattern that played out yesterday (May 4th). In premarket trading, CNS Pharmaceuticals Inc. (NASDAQ: CNSP) checked all the boxes:
Source StocksToTrade CNSP 5/4/26 premarket RCT pattern
- News: a 7:00 a.m press release announced an oversubscribed $22.5 million private placement.
- A near vertical move: CNSP gapped up $1.63 per share and then ran another +128% in 20 minutes before the red 5-minute candle
- Low float: 731.12k
- High volume: CNSP traded 10.6 million shares in the first 20 minutes after the press release.
Check your inbox tomorrow for part 2 of How To Trade the RCT Pattern: Build a Structured Trade Plan. See you then.
On My Radar
- Meme Style: Gamestop gambles on eBay. Any bets Ryan Cohen getting bid sniped?
- Speaking of gambling, Warren Buffet says “The market’s doing church with a casino attached.”
- Here we go again. Oil up, stock indexes down after the U.S. launched Project Freedom to reopen the Strait of Hormuz. Iran responded by attacking a U.A.E oil port.