Hello, friends! On our site there have already been several forex strategies to trade on charts Renko, I think it is worth considering this type of charts separately, discuss the pros and cons of this approach to trading. Also as part of this review, we will get acquainted with an alternative indicator for drawing Renko charts, as some of the old tools after the update of Metatrader 5, some do not work.
What is Renko graphics?
This graphical method can be used to display trends that may not be so obvious in charts drawn from bars or candlesticks.
Renga charts were invented by Japanese traders several hundred years ago and are called Renga, which means “brick” in Japanese. How do they differ from bar or candlestick charts? Above all, they are visually attractive, which makes it easy to filter out the noise and isolate trends. They display candlesticks symmetrically and are effective for determining the main trends and levels of support and resistance. Renco charts can be used effectively to get trend reversal signals.
Renco charts are one way of presenting price changes. They show the trend in a way that bars and candlesticks cannot. Renco charts are capable of sifting out the noise and creating uniformity that underlies the trend. Being useful, Renco charts also provide signals about reversals and serious trading alerts, as well as generally provide a number of advantages for trading using such charts. One of them is that a trader is able to stay in the market for a longer period of time than using other methods of following the trend.
Compared to more traditional candlestick charts, Renko charts make the decision-making process much simpler. A typical one-minute candlestick chart of EURUSD would contain 1440 candlesticks per day, while a similar Renko chart (with 10 pips brick size) would contain only 15 to 40 Renko charts. The smaller number of candlesticks reduces the number of variables you need to consider in order to make your trading decisions during the trading day with FinmaxFX.
The pros of Renco charts:
Clearer display of trends
Lack of strong “noises” on the chart.
Alternative work of indicators and advisors
Easier trading for short-term traders
Renko graphs consist of dark (bearish) or light (bullish) “bricks” that move in the direction of the trend. As a rule, bricks of different colors begin to appear before the trend reversal, and the movement continues by two or more bricks in the same direction. If you look at normal candlestick charts of similar timeframes, you can see the appearance of different signals, both trend, and counter-trend. However, Renko charts will keep the same trend direction until another opposite brick appears.
Once the Renko chart is formed, it will not change its direction until the next brick is formed. The disadvantage of Renko bricks is that they never appear next to one another.
They are always displayed strictly at an angle of +45 degrees or -45 degrees from the previous brick. Once a brick has been created, its size will never change and it will never be removed.
The size of the Renko charts determines the accuracy of the trend display and is set according to the volatility and longevity of your trading tactics. The smaller the size of the bricks, the more bricks will be displayed on the chart and the more clear the price movement will be. The larger the size of Renco bricks, the fewer candlesticks will be on the chart and the more hidden price movements will be displayed. Therefore, one should be careful when choosing the size of candlesticks.
Adjusting the size of bricks on the Renko charts is more of an art than a science. In order to determine the optimal brick size, it is necessary to perform various studies, but in general, the size of the brick is specific to each individual tool and its range of volatility.
You must experiment by applying different brick sizes in practice and find a brick size that fits your strategy and indicators.
From my experience, I have found that Renko charts are more effective inside the day than when trading on daily charts. Therefore, I recommend using Renko candlesticks only if you are trading intraday.
Although Renko charts are visually appealing and show trends well, there may be some problems when working with them:
- Renko charts suppress noise and/or volatility. One difficulty is that it can take 5 or 50 minutes, or several hours, for each subsequent brick to form and display. Since new bricks are only generated when you close a candle in the current chart, waiting for the next one to appear will give you some concern. During the consolidation period, it will take much longer to form the Renco brick. At the moment when the next Renco brick is formed, the candlestick chart could show consolidation, unwanted reversal or frequently changing the direction of price movement. It should be remembered that in the area of accumulation of key moving averages or other critical price levels, there is a frequent alternation of multi-directional Renko bricks. Such an alternation can be strongly pronounced when the price is near the key support or resistance level.
- Smaller sizes of Renko charts will display the upcoming reversals faster, while larger sizes of bricks will cause a delay in recording the price movement.
- In the trend, the difference between the top of a light brick Renko and the bottom of a new, oppositely directed brick Renko is three times the size of this brick. This is because in order to form the oppositely directed Renko chart it is necessary that the closing price is lower than the lower part of the Renko chart. Thus, you will need more time to wait for the next oppositely directed Renko chart to appear. As a result, you will also need to resort to other ways to protect your profits.
- The number of oppositely directed Renko charts is much smaller than the unidirectional bricks. For a trend, this is only an advantage, but working in combination with many trend indicators, you can get too ahead, and therefore false, signals for reversals.
- Renko charts are formed at close prices, and the number of bricks displayed in one direction or another will be known only after the current candlestick close. This may lead to a delay in forming the chart. Another important question is how many of these Renco bricks will be formed at the close of the candlestick or trading session.