Color Coding of Subfolders by extension type

Hello, I am a newbie and just purchased this application this morning.
I would like to color code files within different folders that are on my desktop.
I have had no problem color coding files by type that are not in folders on my desktop but for some
reason I cannot do the same for files within folders.
Here is an example of my approach. Perhaps there is a flaw in my logic
If all of the following conditions are met
Kind is Folder
Subfolder depth is 2
Extension is avi
Do the following
Run rules on folder contents
Set color label to Red
Any ideas at all since I really would like to use this feature in the program .
I would like to color code files within different folders that are on my desktop.
I have had no problem color coding files by type that are not in folders on my desktop but for some
reason I cannot do the same for files within folders.
Here is an example of my approach. Perhaps there is a flaw in my logic
If all of the following conditions are met
Kind is Folder
Subfolder depth is 2
Extension is avi
Do the following
Run rules on folder contents
Set color label to Red
Any ideas at all since I really would like to use this feature in the program .