grep sometimes disables the color output, for example when writing to a pipe. You can override this behavior with grep --color=always
The correct command line would be
grep --color=always WORD * | grep -v AVOID
This is pretty verbose, alternatively you can just add the line
alias cgrep="grep --color=always"
to your .bashrc for example and use cgrep as the colored grep. When redefining grep you might run into trouble with scripts which rely on specific output of grep and don’t like ascii escape code.