I’ve traded stocks for 10 years. I went from losing my initial $200,000 principal by chasing—buying at highs and selling at the worst times—then finally exiting after a big loss. Now I’ve reached steady compounding. I didn’t rely on insider information, and I never chased “hot” stocks. I just stuck with one “dumb” method: buying on bearish/red candles. Many retail traders panic as soon as they see a red candle, quickly cut their losses and run—yet they don’t realize that behind the red candle lies the most reliable opportunity to make money. Today, I’ll break down this “buy on red candles” strategy using plain language. No complicated terminology—just practical, hands-on takeaways. Even ordinary retail traders can follow it to avoid chasing-high traps and profit whenever they buy.[Taoguba]

Let me share a painful truth: why do retail traders always lose money? Because they only look for buying opportunities on green/up candles. When they see a stock rising, they chase the trend. In the end, they buy at the top and get trapped. But the people who truly know how to trade all pick up bargains in red candles. It’s like shopping for clothes: when everyone rushes to buy, the price is the highest and no one bargains; when nobody wants it, that’s when you can bargain and grab a bargain. Stocks are the same—red candles are the market’s “discount opportunity.” If you catch it, you can enter at a lower cost, and the probability of making money naturally doubles.

Many people will ask: “Isn’t a red candle just a signal of a decline? Doesn’t buying mean waiting to get trapped?” Actually, no. Not every red candle is something you can buy. Only certain types of red-candle patterns are “golden pits.” After summarizing 12 years of real trading experience, I found 3 types of red-candle patterns are the most reliable. As long as they appear, the probability that you’ll buy and then it goes up can reach 80% or more.

First type: shrinking-volume pullback red candle—the steadiest “bargain-picking” opportunity

What is a shrinking-volume pullback red candle? It means that during an uptrend, a red candle suddenly appears, but the trading volume is clearly smaller than on the previous few days. What does that indicate? It indicates that only a minority of people are selling, while most people are still holding and waiting for the stock to keep rising. Selling pressure has basically dried up, and the pullback is only temporary—it won’t last long before the price continues upward.
This red candle is like “deep breathing” while running. The run is too tiring, so you slow down and rest a bit—then you run faster afterward. For example, during an uptrend a stock might trade at around $500 million per day in volume. Then one day it prints a red candle, and the volume drops to $200 million. That’s a classic shrinking-volume pullback red candle—an excellent buying opportunity.
I’ll share a real case: in 2021, a consumer stock I was following printed a shrinking-volume pullback red candle during its rally. The volume shrank from about $400 million per day to $150 million. I bought decisively, and the next day the stock started to rebound. It rose 12% in a week, and I made a lot of money. There was also a technology stock in 2023 that showed the same type of shrinking-volume pullback red candle. After I bought it, I held it for half a month and gained 25%.
To judge a shrinking-volume pullback red candle, there are two key points: first, the stock must be in an uptrend, with the price staying above the 5-day and 10-day moving averages; second, the volume must shrink to below 50% of the average volume over the prior 5 days. If both conditions are met, you can buy boldly and you’re almost never trapped.

Second type: moving-average retest red candle—the “touchstone” for the trend
A moving-average retest red candle means that after a stock advances to a certain stage, it pulls back to around the 5-day, 10-day, 20-day, or 60-day moving average and prints a red candle. This red candle looks like a bearish signal, but in reality it’s a “test” of the moving average’s support. As long as it doesn’t break below the moving average, it’s an excellent buying opportunity.

Moving averages are like a stock’s “lifeline,” able to support the price as it rises. When the stock pulls back near the moving average, large amounts of capital come in to buy, and the stock is likely to rebound quickly. For example, during an uptrend a stock pulls back to around its 10-day moving average and prints a red candle. The next day it starts to rebound—this is the power of a moving-average retest red candle.

The key to judging a moving-average retest red candle is: first, the moving average must be sloping upward, forming an uptrend; second, when the price pulls back to the moving average area, it must not break below the moving average—even if it briefly drops below, it should quickly be pulled back up; third, the volume must shrink, showing that sell pressure isn’t strong. If all three conditions are met, the probability that the stock will rise after you buy is very high.

Third type: high-volume false red candle—the “shakeout trap” set by the main players
A high-volume false red candle is the pattern that’s easiest for retail traders to misunderstand, and it’s also one of the most profitable patterns. What is a high-volume false red candle? It means that after the stock opens, it spikes up, then gets pushed down. By the close, the closing price is slightly lower than the previous day, and it prints a red candle—but the trading volume is clearly higher than the previous day.

Many retail traders see a high-volume red candle and think the main players are distributing, so they cut losses and run. But actually, this is the main players’ “shakeout trap.” The goal is to shake out the indecisive retail traders, and then quietly accumulate shares in preparation for the next up-move. The essence of a high-volume false red candle is “it looks like it’s falling, but it’s actually going up,” because both the opening price and the closing price are higher than the previous day—only a pullback occurs during the session.

In 2020, one of my new energy stocks showed this high-volume false red candle pattern. That day the stock opened and surged 3%, then got pressured down. At the close it was down 1%, printing a red candle, but the trading volume was 80% higher than the previous day. I judged this as a main-player shakeout and bought decisively. The stock then surged on the third day. In half a month it rose 30%, and I made a big win.

The key to judging a high-volume false red candle is: first, the stock must be in an uptrend; second, that day’s opening price must be higher than the previous day’s closing price, and the closing price should be close to that day’s high; third, the trading volume must expand to at least 1.5 times the previous day. If all three conditions are met, you can confirm it’s a main-player shakeout, buy boldly, and there will be a lot of upside room afterward.

After explaining the 3 reliable red-candle patterns, I’ll now share the core operating principles of “buy on red candles.” These are what I summarized from 12 years of real trading. They can help you avoid most traps and double your odds of making money.

First principle: the trend is king—only buy red candles in an uptrend

This is the most core principle of “buy on red candles,” and also the one retail traders are most likely to ignore. If the stock is in a downtrend, even if the above 3 red-candle patterns appear, you still can’t buy—because red candles in a downtrend are “continuations of the decline,” and buying will only get you trapped.
Only in an uptrend—meaning the price is above the 60-day moving average and the 60-day moving average is sloping upward—are red candles that appear as pullback signals. Only then can buying lead to upside.

Second principle: buy in batches—don’t go all-in at once
Even if you encounter an extremely reliable red-candle pattern, you still can’t buy with a full position in one shot. Because there is no such thing as absolute certainty in the stock market. Even if your judgment is wrong, there is still room to adjust your position. I usually buy in 2–3 batches: first buy 30% of the position. If the price keeps falling, add another 20%, topping out at 50%—never full position.
The advantage of doing this is that it helps average down your cost. Even if the stock pulls back in the short term, you won’t lose too much. For example, after I bought, the stock dropped another 5%. I added 20%, lowering my average cost. As long as the stock rebounds even slightly, you can get back into profit.

Third principle: strict stop-loss—protecting your principal is the most important
“Buying on red candles” isn’t guaranteed to win every time, and there are moments when you may be wrong. That’s why you must set a stop-loss line. Once it breaks, sell decisively—don’t hold onto wishful thinking. My stop-loss is 5%. If after you buy the stock falls 5% and there’s no sign of a rebound, I sell immediately to avoid bigger losses.
Many retail traders lose money simply because they don’t have stop-loss discipline. They were wrong, yet they cling to hope, and the trap gets deeper and deeper. Remember: opportunities to make money in the stock market are always there. As long as you protect your principal, you’ll have a chance to earn it back.

Fourth principle: don’t be greedy—take profit when it’s good
After buying, once the stock rises by 10%–15%, you should stop taking profit decisively. Don’t get greedy and wait for it to go up even more. Many retail traders blow their gains because of greed. They could have made 10%, but because they wanted 20%, they end up giving back the profit—and sometimes even turning it into a loss.

Let me share a few “avoid trap” guidelines for “buy on red candles.” Newcomers must remember these:
1. Don’t buy stocks with weak fundamentals: even if a “reliable red-candle pattern” appears, if the company’s performance blows up or there are major negative news, don’t buy. Stocks with weak fundamentals may rise in the short term, but it’s hard to sustain, and they’re likely just being used by the main players to lure you.
2. Don’t buy stocks with too little trading volume: if a stock’s daily trading volume is below 1 billion, don’t buy even if a red-candle pattern appears. Too little volume means poor liquidity. Even if you buy, it’s hard to sell—you’re prone to get trapped.
3. Don’t buy when the overall market is falling hard: if the market drops by more than 2% on the day, don’t buy even if a stock shows a reliable red-candle pattern. When the broader environment is bad, individual stocks can’t isolate themselves from it, and a “false breakout” is very likely.
4. Don’t trade too frequently: opportunities to buy on red candles aren’t available every day. Finding 2–3 stocks per week that meet the conditions is already pretty good. Don’t trade every day—frequent buying and selling increases the likelihood of mistakes and also means paying more fees and commissions.

After 10 years of trading stocks, I went from losing my $200,000 principal by chasing highs and selling at the worst times, to exiting after a massive loss. Now I’m at steady compounding. My deepest realization is: making money in stocks doesn’t require complicated indicators or advanced theories. If you find the right method and stick to your principles, you can achieve stable profitability. “Buying on red candles” may look simple, but it captures the true essence of the stock market—buy low and sell high. Many retail traders are afraid of red candles; in fact, it’s because they don’t understand the logic. A red candle isn’t a signal of decline—it’s the market’s “discount opportunity.” Once you learn to recognize reliable red-candle patterns, you can enter at a lower cost, and the probability of making money naturally doubles. If you’re still chasing highs and getting trapped right now, you might as well try “buying on red candles.” And if you want stable profits and to avoid traps in the market, this method can help too. Remember: the best opportunities in the stock market have always been hidden in places where other people are afraid to look. Finally, let me emphasize one more thing: the stock market involves risk; investing requires caution. The methods discussed in this article are only shared experience and do not constitute investment advice. Real-money decisions are still up to you—don’t blindly follow the crowd. If you think this method is useful, hit like, save, and comment so we can avoid traps together!
Finally, I wish everyone a happy weekend! Have fun

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Ten-Year Trading Recap: The stock market’s highest-tier profits come from buying the dip against the trend—setting up your trade by riding the bearish candle

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