Most Powerful Renko Bar Trading Strategy
Trading cannot solely depend on mental calculations. It requires modern tools to bring precision and accuracy. When it comes to calculation, prediction, and estimation, nothing can beat the power of charts. Renko chart is a bar chart used for trading that helps filter out small price movements so traders can trap big sharks with more significant trends.
Renko bricks create Renko charts. Through color, these bricks show the movement of stock. It makes it easy to navigate the movement of price to eliminate the confusion based on direction. They can also be incorporated into a trends trading strategy.
Comprehending the importance of Renko, this article aims to show the best strategy related to using Renko charts and how they work.
What are Renko Bars and Renko charts?
Renko charts are trading charts that separate, eliminate or dull out small price movements to draw traders' attention to the more significant trends.
Renko bricks are also known as blocks and bars. Renko bars are the elements of the Renko chart used to display the data. The bricks formed on the chart have the same length but are placed at different places to display the price movement of stocks.
However, these Renko bricks are created or set at 45 degrees of angle and the size of the brick can be of any price, such as $0.20, $0.60, $6, $10, and so on. The bars are price specified. When the price increases, the bars are either white or green. When the price declines, it turns, making it easy to track the direction in which it is made. When utilized correctly, Renko charts can assist in resolving confusion about price tends easier than a candlestick chart.
How do Renko Bars form?
Renko bars are the main element of Renko charts. They form with the upward or downwards price movement showing different colors. The Renko chart is created by bars with upwards or downwards movement depending on the price trend. New Renko brick forms at a 45-degree angle from the previous one.
How do Renko Bars work?
It is a rule of the charts that the bars never come side by side with one another. The user determines the brick size of the bar according to preference, which then determines when the new bars form.
For a better understanding, let's take the example of the SPY chart below. If the brick size is 5, it means when the price increases or decreases up to 5 points (or dollars) from the closing point of the previous bar, the new brick forms on the Renko charts.
For the bar to reverse and change color, the price needs to move more than 10 points (or double to bar size), and the new bar will create a new one in the opposite direction. Movement smaller than 5 points will not show any impact on the Renko charts.
Adjusting Renko Bars
The most widely used charting platform for Renko Bars is Tradingview. Notice below that the timeframe on the Renko charts is set to 5 minutes. The timeframe can be adjusted to one day, one week, or one month. As a user, you can select a time frame ranging on the top left part of the screen where the ticker symbol is.
A new Renko bar will only be formed when the price travels the specified brick size in the direction of the current trend or twice the size of the specified brick size in the opposite direction of the trend. The Renko bars can last 1 minute or 1 day, what forms the candle is the price movement.
What is a 10 Moving Average?
For a Renko chart, the moving average will average the previous ten Renko bars' closing price. This average is called a 10 simple moving average. We can see on the Tradingview charting platform below how well this indicator can follow a stock.
Why Use a 10 Moving Average?
The 10 moving average is by far one of the most popular trend trading indicators for traders all around the world. Below are main reasons traders keep using this indicator every single trade.
Follows Price Closely
The 10-day moving average is a well-known short-term technical indicator. It follows price action on many trading charts.
Visually Shows Trends
A moving average sloping up dictates an uptrend and one sloping down shows a downtrend. Visually this allows traders to recognize trends faster and play them.
As we will discuss in this blog, a fast-moving average will help traders find an entry, exit, and stop-loss into a trade.
All Time Frames
A long-term or even short-term moving average also serves many purposes for the Renko trading system. It proves or shows to traders the trend's strength and doubles up as a valuable indicator for placing sell signals.
While keeping close to the original price, it smooths, makes the price data easy to analyze with adequate brick size for traders, and gives a glimpse of where the price is heading. It helps predicts the stock's future.
This short-term movement on the Renko chart shows the fluctuating trend while removing the impact of minor or external market noise.
Add a 10-day Moving Average Indicator to the Renko Chart
On the top of the screen for Tradingview there is a button named Indicators. After clicking, all the indicators will show appear to be able to add to the chart. By typing in "moving average" the trader will be able to see all the moving average options available. For example, in this blog, we will only reference the "simple moving average". After clicking that option, the trader the moving average will be added to the chart and from there the trader can adjust the settings by right-clicking.
Best Renko Bar Trading Strategies
Trading strategies are another element of making a good trade. Every field and aspect of life has a strategy for betterment, therefore in Renko charts.
Adding other features like indicators enhances the functionality and user experience. Similarly, combining the 10 moving averages with the Renko charts provides traders with a solid understanding of a trend combined with a place to enter safely with support and resistance.
Buy signal is a significant Renko trading strategy to keep a check on Renko bars. It is basically a condition chosen by traders as an alert for entering profitable purchases for the sake of trading or investment. Signal buying can be either observed by the heart pattern or calculated manually.
Integrating the 10-day SMA will help you make the process easy and accurate. However, best to enter into a long position when the green bricks cross above the 10-MA.
Exiting a Bullish Play
There are a couple of trading strategies to exit a bullish trade with a Renko chart. Some of the favorites are to exit long positions when either the candle turns red, or the red candle closes below the 10 moving average. 10 moving average means the constant activity of stock for 10 days which is enough to decide your next move.
Sell (Short) Signal
The short signal Renko strategy works for the opposite purpose of the buy signal but follows the same pattern. It is a condition that a trader sets to determine the right time to short the stock or asset.
You could integrate the sell signal with a 10-day MA to determine the authentic movement. However, it is best to enter into a short position when the red candle crosses below the 10-MA.
Exiting a Bearish Play
However, in this Renko strategy, one of the best times to exit short positions is when the candle turns green, or the green Bricks in the Renko chart close above the 10 MA.
A stop loss in option trading takes place with a broker to sell securities when they make it to a particular or agreed price. These stop-loss practices help minimize the loss of a trader that may incur in the security position in the market.
Hence, if the trader or investor sets the stop-loss limit at 10% below the original value at which the trader purchased the stock or security, his loss will be limited to 10 percent.
Most traders will use a trailing stop loss when trading Renko bars. Trailing stop losses allow traders to maximize the trend and walk away from watching the trade.
Renko Trading Strategy for Intraday Trading
You require an RSI indicator only for this type of Renko bar trading strategy. You can utilize a 20-period RSI indicator. Hence, the time will be similar to ATR Renko brick size.
After spotting the momentum divergence of ATR Renko brick size, an entry signal is triggered after getting the reversal. And on the Renko charts, the trend is active in reverse and is active and set in motion after the bar changes its color. In the scenario, you could witness the bearish divergence.
If you want bullish divergence, keep waiting until bricks turn green. However, you could end the trade Renko after another reverse pattern is formulated on the contrary side of the trade. As the source to keep the account credit safe and prevent excessive loss, you need to place your SO below and above the awning point developed right after your entry.
In the process, you might face many distractions, but with the help of Renko bars, spotting, divergence, and reversal become much more accessible.
Renko bars make sure that you have a neat and clean interface to monitor charge trend fluctuation. It is the right time to adopt something new if you are facing a challenging time reading the price on a traditional candlestick chart and the Heikin Ashi. Trading worth Renko bars with a particular Renko trading strategy could be the ideal fit for you to trade Renko.
There is no doubt that the Forex Renko chart is more accessible and more suitable for traders who still face difficulty analyzing candlestick charts or the Heikin Ashi trading system. The Renko trading strategies shown throughout the guide are just mere introductions to the Renko bars' world. With a clear idea, you can start developing a more profitable trading strategy for the competitive trading system and market.