What is needed is a positive reinforcement system. Our teacher from last year had a "thank you jar"-- if a child did something (anything) good, they could write their name on a thank you ticket and put it in the jar. A ticket would be pulled for various privileges like line leader-- if you did a lot of good things it upped your chances at the cool jobs. By the second week of the school the children were eating out of her hand; they would have done anything for her. Basically, just from being thanked and noticed when they did the right thing.
(The color change chart is also bad behavioral psychology even for non-troubled children: it rewards bad behavior with attention and neglects good behavior altogether. Very shabby IMO.)
I don't know what to suggest in terms of negotiations with the principal and teachers-- teachers HATE it when you mess with their classroom management techniques, and a principal will always back up the teacher's right to choose their technique-- but yes, this could be a stressful situation for your DD.
DeeDee
I agree with DeeDee on all counts, including, unfortunately that it's the teacher's right to choose. You can try giving a book such as 'The Inner Wealth Initiative: The Nurtured Heart Approach for Education' Howard Glasser and Tom Grove
which goes on on this topic in great detail - in hows and whys.
Alternatively - you may have to adress this topic directly with DD. Sounds terrible, but you may want to make a 'silly color wheel' with non-sequiturs colors such as 'Rainbow' 'Lavender' and 'Plaid' and hang it up and see how much humor can be created around it. You can give your child a timer, and ask her to order you around for 5 minutes and then move the color wheel to a silly color and explain why you 'deserved' that. You can ask her to list some 'intermediate steps' of new home color wheels until she finally works up the nerve to use a red,yellow and green one at home.
See http://en.wikipedia.org/wiki/Desensitization_(psychology) for more info - but remember to go for lots of humor and overexaggeration. I would treat it like any other fear - find the edge where it's funny instead of 'shut down' -causing. Maybe a blank color wheel that says "I love you" on each segment to start with. If she is willing to talk about her perfect color wheel,the best ideas will come from her own mind.
It's a thought anyway.
I think the thing to keep in mind is that now that you know how downright dangerous schools can be for gifties, you don't have to commit to finishing the year in any particular classroom. You don't have to tell her that, but just you knowing it in your bones will ease the whole situation.
Love and more love,
Grinity
