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Monk

stuck on Red to Green...

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I'm stuck on the Red to Green strategy explanation. I've read Andrew's chapter several times and can't quite grasp it. This much I'm comfortable with...

 

I think It has to do with the color of the exchange when a stock that Gaps changes direction and trades towards the PDC on rising volume. It sounds like the gain achieved from the PDC in the PreMKT is decreasing as it moves toward the PDC.

 

Can anyone offer a simpler explanation or clarification? Maybe even some screen shots? Thank you.

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I'll give it a shot...

 

Let's say that yesterday's 4PM Eastern Time closing price for Microsoft (MSFT) was $94.17, and that closing price was lower than yesterday's 9:30AM Eastern Time open. That would have been, by definition, a Red Day.

 

But there are always some after-hours action on this type of stock (big Fortune 100 stocks -- somebody somewhere is getting to trade them in the pre-open in certain markets).

 

So when YOU arrive to your computer at 9am Eastern Time, you discover (from your broker, like Fidelity or TDAmeritrade or something, and not from DAS Level II) that the current price in the pre-open is now $95.90.

 

So from Andrew's book..."if the price is lower than the previous day close (for stocks that gapped down), the market is moving from a Red day to a Green day (meaning that the percentage that the price has changed will now be positive, which will be shown as green in most of the Exchanges and platforms). This is a Red-to-Green move."

 

So you have an "up trend". (Bearing in mind that Andrew's color configuration in DAS shows white instead of green, of course -- green is just a rhetorical description).

 

1. Forum Lurkers: If anyone notices that I've misinterpreted something in here, please let me know...

2. Monk: presuming my description is correct, does that help?

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Thanks Doug. It does help. So in really short terms Red to Green is "describing the overnight move" (a RED move for the prior day trading session and a move to GREEN since then).

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I've always interpreted this to refer to the tendency that stocks have to gravitate toward the previous day close (kind of how people talk about "closing the gap" on stocks that gap overnight). The "red" refers to the current day being red (i.e. if it's trading below previous day close) and "green" refers to the current day being green (i.e. if it's trading above the previous day close); it'll go from red to green when it crosses this line.

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I'm confused by this as well. 
Here's the excerpt from Andrew's book (great read BTW): 

"If the current price of the stock is higher than the previous day close (for Stocks in Play that gapped up), the market is moving from a Green day to a Red day (meaning that the percentage that the price has changed will now be negative, which will be shown as red in most of the Exchanges and platforms). This is a Green-to-Red move."

The reason this doesn't make sense is the price in this excerpt is currently above the previous day's close,. Given we've gapped up we must be above yesterday's open, and ergo the price is up. Why would the percentage that the price has changed be negative? Nothing is mentioned about the open of the day when the gap occurs. We are above yesterday's close - shouldn't that be positive? And when we are up - are we not green?

If this said the price is below yesterday's close, and yesterday was green, and we're below the open, so the day candle is red this makes sense. 

 

 

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21 hours ago, sandstorm said:

I'm confused by this as well. 
Here's the excerpt from Andrew's book (great read BTW): 

"If the current price of the stock is higher than the previous day close (for Stocks in Play that gapped up), the market is moving from a Green day to a Red day (meaning that the percentage that the price has changed will now be negative, which will be shown as red in most of the Exchanges and platforms). This is a Green-to-Red move."

The reason this doesn't make sense is the price in this excerpt is currently above the previous day's close,. Given we've gapped up we must be above yesterday's open, and ergo the price is up. Why would the percentage that the price has changed be negative? Nothing is mentioned about the open of the day when the gap occurs. We are above yesterday's close - shouldn't that be positive? And when we are up - are we not green?

If this said the price is below yesterday's close, and yesterday was green, and we're below the open, so the day candle is red this makes sense. 

 

 

The wording for this strategy definitely needs some clarification. @Dima summed it up nicely:

Price is currently green and moving towards previous day close => G2R

Price is currently red and moving towards previous day close => R2G

Perhaps a better explanation would be:

"If the current price of the stock is higher than the previous day close and is moving towards that line, the market is moving from a Green day to a Red day (meaning that the percentage that the price has changed will now be negative, which will be shown as red in most of the Exchanges and platforms). This is a Green-to-Red move."

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