How can you trade a Renko Chart?
A well-known problem from traders is that they seem to exit profitable trades too soon. They think that they could have made much more money if they stayed a longer time in the trades. In your search for profits you are often shaken out by the noise of the market.
What if there is a possibility to minimize the effect of the market noise and to filter out small corrections while still having the ability to see reversals which can lead your profits in danger? Well there exists such a tool: It is known as a Renko chart and today we will have a look on how you can trade Renko Charts.
What are Renko Charts?
Renko - which is derived from the Japanese word “renga” or brick - is based on movements in price and not in time which means that there must be a special
size of movement in the market or the chart ignores it. It is a technique which can be used for swing or position traders rather than for intraday traders. Please visit Forex Live Renko Chart to get an impression how a Renko Chart looks
A lot of trading platforms have Renko charts built into their charting systems. When you are planning a trade from a Renko chart have in mind that it shows historical data. Be always sure to control the current market price before placing an order.
The only parameter which must be set for the Renko chart is the size of the brick itself: have in mind that the larger the size the less movement of a chart will be shown but there will be larger stops on the positions. If you use a too small brick size you will have too much sensitivity to price movement and the reason for using Renko charts is lost. There is no perfect setting but many traders often use 1% of the price of the stock as the setting on daily Renko charts. You have to experiment a little bit and see which number fits you to get the best view of the trend.
The advantages of Renko Charts
The advantages of a Renko chart can outweigh the disadvantages but you should be aware of what those disadvantages are. At first these charts are price based and the time is ignored. There can be a long period before a new brick is created. When you use a daily close for these charts it could mean that there may be several days or even weeks before the price moves significantly enough to create a new brick. With an intraday Renko chart there can be hours between a creation of a new brick. A trader has to be very patient in this case as the trend has paused and become choppy.
Since there is no reversal shown until a new brick could be drawn in the opposite direction the stops can be quite large. When you make the brick size smaller of course you can tighten the stops but have in mind that this comes at the expense of price sensitivity.
Trends can generally be seen much easier when you use these types of charts. Supply and demand zones also seem to be more visible. When trading you should always trade in the direction of the main trend. You can stay in the trade until your next target is reached or when you get a sign of reversal that would be a brick in the opposite direction.
You can try to experiment with trades which are based on Renko charts to see if you want to use them regularly in your trading and if they fit to your trading style.
Please visit our assortment of Forex Renko Videos!