Tag: renko charts

Before we look at my best methods, it is very important to see my Renko Bar settings and how Renko Bars actually work.

Renko Charts look like this. In simple words, they are red and green boxes moving up and down. Compared to candlestick charts, where each candle varies in size, all boxes in a Renko chart are the same. This makes it simple to see what’s happening with the price.

However, it’s important to note that there are two versions of Renko charts: the Average True Range (ATR) Renko chart and the more traditional Renko chart. From my experience, the traditional Renko chart is better in some scenarios.

If you’ve used the TradingView charting platform, you’ll likely recognize this chart layout. On the top left corner, you’ll find a dropdown for ‘candle type’, and within this list, you’ll find the Renko chart. By default, this chart opens with ATR settings, meaning the Renko bar size is decided using an ATR. Instead of ATR, I will select Traditional.

Here’s how it works: Let’s say you choose your block to be a $1 size. If the price goes up by $1, you’ll see a new green block, and if it falls by $1, a red block will be there. But a new block won’t be made next to the current one if the price moves the opposite direction. This opposite movement remains ‘invisible’ forever.

After a green bar, if the price movement in the downward direction is 2 times as big, then and only then a red bar is created below the green bar’s opening price. The same applies in reverse.

This results in all Renko bars being at 45-degree angles to each other.

This is a big advantage because the price actions in a range or choppy market, where candles often move against and are next to each other, are filtered out in a Renko chart. This is one of the best features of the Renko chart.

When I was using Renko charts, I was more into “price action trading”, and these charts showed a clean and clear view of the market. They took out all the confusing market “noise”, making it easier to see patterns for me to use price action strategies.

While I was overall happy that Renko charts were actually helping me make better trades, I was soon met with disappointment when I realized that one thing about Renko charts is a big fat lie. What I mean is the way they are usually advertised on websites is pretty misleading. Let me explain.

Let’s say you’ve opened a Traditional Renko Chart, and you’ve set the time frame to 1 day, with the Renko block size set to $1. This should mean that it will always show a Renko Bar after a $1 price move, right? And if you change the time frame from 1 day to, like, 5 minutes, the block pattern should be the same. But it’s not!

When I switch the time frame from 1 day to 5 minutes, the pattern changes! Because the Renko Bar does depend on the time frame, but maybe not exactly how you are thinking. You see, the Renko Bar calculates its value using the closing price. And when does a closing price appear? That’s right! When the time period of the timeframe you have selected is over. On 1 day timeframe, there will only be a single closing price in a day. Whereas on the a 5 minute timeframe, there will be closing price data every 5 minute for Renko bars to appear.

So let’s say the day starts at a $100 price, and throughout the day, the price moves 9 dollars up and then moves back down 8 dollars. Here, even though the price made a big move in the upward direction, the distance between open and close was only 1 dollar. Now since Renko bars only look at the closing prices, and not highs and lows, only a single Renko bar will appear.

That’s a big problem! Renko missed an entire big important move because of the selected timeframe. But there’s a solution I found to fix this problem. The solution is to use a smaller timeframe, such as 5min. Since 5min will create closing price data more frequently than a higher timeframe, Renko bars will have enough closing prices to form almost every price move.

In the 5 best methods I’m going to show you next, I have used Renko Charts on the 5min timeframe. Furthermore, the Renko Bar size I have set is equal to around 1% up-down move. So a Renko Bar will only appear if there is a 1% price movement. The bar size setting is really up to your own personal preference. You can set it to whatever size you like. Just make sure that multiple smaller candles will fit in that 1 Renko so that a single Renko bar will have enough closing prices.

Alright! Now that you have understood how to setup Renko the right way, let’s jump into my top 5 ways to use Renko charts well:

Number 1.

When you opened a Renko chart for the first time, you may have noticed that it does a great job tracking the trend for a long time. You may have thought, “Well, if I had traded in the direction of the trend, I could have made a good profit by trailing the stop-loss!”

But unfortunately, you can’t use just any stop-loss plan. If you move your stop-loss with each new block on the Renko chart, it might look good on past data. But remember, Renko charts only show the closing price and hide the highs and lows, which could hit your stop-loss in the live market.

So, what’s the solution?

You have two smart ways to profit from long trends on a Renko chart. One way is to use the Super Trend indicator. When you put this on a Renko chart, you’ll see there’s a little space between the Renko block and the super trend line. This little gap gives you a safe spot to put your stop loss and move it as the price moves in the entry direction.

Let’s say the price is going down and making lots of red Renko blocks. Then the price starts to go up, and you decide to go long. First, you put your stop loss a little below the lowest point of the most recent dip, leaving some extra space. This extra space should be a bit more than the size of your Renko block to include all invisible lows. If the size of a Renko block is $1, keep your stop loss $1 below the lowest point. When the price starts to go up, you can move your stop loss to below the super trend line and keep moving it higher as the Super Trend goes up.

When you see a chance to go short after a bunch of green blocks, you do the opposite: put your stop loss a bit above the highest point of the price peak. If the block size is $1, then leave a $1 gap above it. As the super trend starts to go down, you can adjust your stop loss above the super trend line and start following it!

Now if you have seen the Super Trend win rate testing video on the main Trading Rush Channel, you might be thinking, “Wait, if the Super Trend indicator has a profitable win rate, why not use it to decide when to enter a trade on a Renko chart?”

On this chart, when the super trend signaled a trend shift, if you had entered a trade at that point, you would have made a good profit. But this could be a trap. When Renko blocks are made, they don’t always come one after another like regular candlesticks. If the price makes a big jump, several Renko blocks might form at once.

This means your real entry point might not be at the first red block but maybe at the fourth.

If you use a smaller timeframe for Renko Charts, as I recommended, the probability of this happening should be low. But still, this can be a big difference because when you look at past trades, Renko charts can sometimes show you a too-good-to-be-true entry point. In live trading, the entry point might have been different.

Number 2.

When we add the M-A-C-D indicator to our Renko chart, we see some interesting patterns. Like, when the price fell and then started to go up again, making a bunch of green blocks. Where the price direction changed, the M-A-C-D also showed a long crossover below the zero line, signaling a possible upward move.

Similarly, when the price was going up with lots of green blocks, and then it turned and started making red blocks, the M-A-C-D showed a short crossover above the zero line, signaling a possible downward move.

Because there is little to no market noise, the M-A-C-D crossovers become more accurate.

But, since Renko charts can sometimes show misleading start points, we can’t use M-A-C-D crossovers even with the zero line rule for deciding when to enter the trade. However, we can use M-A-C-D on Renko Charts to find important price levels super easily and understand what the market is doing.

I frequently get questions like, “How do I find strong price levels? And how do I filter out weak price levels because I keep drawing too many price levels on the chart” This can be a good solution for that! Renko chart and M-A-C-D with zero line rule combination will literally filter out weak price levels.

Furthermore, you can also use this important price level M-A-C-D technique in the next method.

Number 3.

It’s something I learned when I was trading price action. One of my favorite ways to trade using price action is support and resistance areas.

If you are a beginner trader and if you’ve tried finding support and resistance on a regular candlestick chart, you know it can be really confusing. I remember it made my head spin when I first started trading. Look at this regular chart, for example. With all the candlestick ups and downs, things can seem really messy.

Lots of new traders, when they see this mess, start drawing their support and resistance lines at every place where the price switches direction (also known as swing high and swing low). But look at this Renko Chart: look at where the M-A-C-D shows a crossover, hinting at a possible change in trend. Try drawing your support and resistance areas at those swing highs and lows.

Here’s a hint: when you draw these areas, don’t put them right at the top and bottom of the Renko bars. Leave a small space, about the same size as your Renko bar. If each bar stands for a dollar, then leave a gap of a dollar. This gap is to include those invisible highs and lows that Renko bar is hiding. In my experience, it is a good practice to add extra gaps on both sides of the support resistance areas, even on the candlestick charts anyway.

If you spot multiple M-A-C-D crossovers in the same price area like this, that is where you can find the most trustworthy and strong support and resistance spots. This method can be a lifesaver for beginners who might find spotting these strong areas hard.

But you can do more with this. I like to mix these two techniques with another way that I’ll show in the next method.

Number 4.

Now, let’s say you have used the Renko method I’ve just explained: you’ve found a strong support spot on your Renko chart. You’re all ready for the price to reach this zone. When it does, you switch back to your regular candlestick chart and start looking for a good place to enter the trade. Let’s say you see the M-A-C-D giving a hint at a bullish crossover on the real candlestick chart. Or maybe you see a strong bullish engulfing pattern on the candlestick chart.

You can go long and set your stop-loss below the support area you’ve drawn using the Renko chart.

And, if you want to move your stop loss as the price goes up, you can use the first method I described, where we used the Super Trend indicator.

Now, if you’ve spotted resistance on your Renko chart by using the M-A-C-D crossover.

You’re patiently waiting for the price to reach this resistance point. When it does, and the M-A-C-D on the candlestick chart shows a bearish crossover, or you see a strong bearish engulfing or shooting star pattern, you can enter a short trade. The first stop-loss goes above the resistance area you drew using the Renko Charts, and then if you want to trail, the stop-loss moves above the Super Trend line on the Renko Chart.

This method of combining how I traded Price Action on normal candlestick charts with all the above Renko methods I described, worked as a good strategy in my Renko trading days.

Bonus Tip!

On this chart, look at the time period. From the first month, January, to the last month, December, 13 Renko Bars were made. If we look at around the same time period again but from a different year, we can see that only 6 Renko Bars were made. And in some long time periods, only 2 or 3 Renko Bars were made. We know that since Renko Bars leave out sideways and choppy movements, in the end, what we see are good trend movements.

But in trading, good trending movements are rare. Most of the time, the market is either ranging or moving slowly.

This results in Renko bars forming after a very long time.

When one looks at the Renko chart for the first time, one might think that they would get a lot of good trading opportunities frequently. Here, we have a good reversal point, and then we have another good reversal, and then another. But in reality, the entry points are many times so far apart that you could take multiple trades with a low-to-average win rate strategy on a candlestick chart and end up making more money.

Now some might see this as a downside of Renko. But in my experience, Renko charts giving entry opportunities after a long while is actually a very big advantage, especially for beginners.

You see, when I was a beginner trader many years ago, finding high-quality setups was difficult. And since I was trading price action, it was even more challenging. It was crayon drawings everywhere.

Whenever I opened my trading charts, I immediately saw trading setups. But now, when I open charts, I sometimes end up not finding anything to trade for weeks. That’s because, with more experience, you realize that most of the time, the market is not worth trading. But when we are a beginner and don’t have enough experience, we don’t know how to filter the not-worth trading movements properly.

But on the other hand, because Renko Bars leave out sideways movement and automatically filter out choppy bad markets, even if you end up finding only a few setups in a long time period, those setups will most likely be of higher quality.

Remember that most technical strategies, such as support resistance, work better when most traders can also see them clearly.

Take this chart, for example. Most of the Reversal points the Renko Bars showed on this chart were also clearly visible on the normal candlestick chart.

Because of this, the quality of the setup will go up, which can result in the win rate and the profit graph going in the upward direction as well.

Number 5.

For a Price Action trader, Chart Patterns are very important. Certain patterns like the double top, double bottom, or flag patterns can be really strong signs of where the price might head or what the price is doing right now. From what I’ve seen, flag patterns don’t always appear on the Renko Charts, but the double top or double bottom are super good signs.

Look at this chart here. The price first went down, and then it bounced right back up. We can spot this bounce back with the help of the M-A-C-D. After a big climb up, the price dropped again, only to climb right back up from the same spot. The M-A-C-D showed this bounce back again. When we join these upward M-A-C-D reversal points and draw a support area like this, what we have here is a double-bottom pattern.

And what’s a double bottom? It’s a sign that the price has a good potential of moving up. While a double bottom in a regular candlestick chart might not always be clear or strong, in a Renko chart, it’s usually super clear and strong.

Look at this chart: the price climbed, then dropped. M-A-C-D showed the reversal point. The price climbed again, but then fell from the same spot, making an “M” shape. When we join the peaks of this “M,” we have a strong resistance area. This double-top pattern shows that the price has a good potential to move down, the sellers are in charge, and buyers are having a hard time breaking through the previous selling point.

Now, if you’ve been watching Trading Rush for a while, you know that I don’t use Renko charts anymore.

You see, if trading is like learning to ride a bicycle for the first time, then Renko Charts are the training wheels. Once you gain enough experience, you don’t really need the training wheels. You can ride a bicycle without them.

Similarly, I used Renko near the start of my trading journey. It was super helpful for beginner me. But after gaining enough live Trading Experience, everything the Renko charts easily showed was also visible on a normal candlestick chart. For example, Renko Charts show strong reversal points and support resistance areas. But as we have seen in the support resistance video, the win rate of how I identify strong reversal points is pretty good on the normal candlestick charts as well.

Also, once you gain enough experience, you will realize that the highs and lows data the Renko chart is hiding to make everything look better are actually very useful to understand price movements better.

That’s not to say Renko charts don’t have any good points. After all, it helped me big time in the early part of my trading journey. They’re great tools for beginners, especially when it comes to spotting price action and key change points.

So, there you have it! The 5 main Renko methods I found useful when I was using Renko charts.