Elite Renko Chart Trading Strategy for Success

Renko charts offer a valuable, though often underrated, approach for patient traders focused on Price Action Analysis. While not as common as candlestick charts, Renko trading can be surprisingly profitable when used correctly. This guide explains the Renko concept, its advantages, and a simple strategy incorporating Renko charts for effective Smart Money Trading.

Understanding Renko Charts: Video Explanation

Explore the fundamentals of Renko charts and a practical trading strategy in this detailed video breakdown.

What is a Renko Chart?

A Renko chart is a graphical display focusing solely on price movement, excluding time and volume from its construction. A Renko brick (bar) forms only when the price moves a predefined amount (the "brick size") beyond the previous brick's high or low. For instance, with a 100-point brick size, a new green brick forms only when the price exceeds the previous brick's top by 100 points. A new red brick forms when the price surpasses the previous brick's bottom by 100 points.

Unlike conventional charts that plot based on time intervals, Renko charts plot based purely on price movement magnitude. This uniqueness offers several advantages for traders, especially in filtering market noise often associated with Market Manipulation Strategies.

Advantages of Renko Trading

Renko charts provide distinct benefits for Price Action Analysis:

• Clear Support/Resistance: Renko charts effectively highlight key support and resistance levels, often showing clearer price reactions at these zones.
• Simplified Trend Identification: Trends appear cleaner and more obvious, making it easier to identify sustained upward or downward price action.
• Market Noise Reduction: They filter out minor fluctuations, wicks, false breakouts, and price volatility seen on candlestick charts.
• Suitability for Scalping: Renko charts can be more effective for scalping and short-term trading than very low timeframe candlestick charts (e.g., 1-minute).
• Capturing Larger Moves: By filtering minor noise, they help traders stay in positions to capture more significant price swings.
• Clearer Order Placement: Determining stop-loss and take-profit levels based on previous bricks is straightforward.
• Reduced Overtrading & Increased Patience: The nature of Renko encourages patience and can help minimize impulsive trading decisions.

A Simple Renko Trading Strategy

This strategy combines Renko charts with a moving average and a volume indicator for a more robust approach, aligning with Smart Money Trading principles by considering volume.

Strategy Components:

• Renko Brick Size: 100 points (adjustable based on trading style and market volatility).
• Trend Filter: 10-period Simple Moving Average (SMA).
• Volume Confirmation: On Balance Volume (OBV) indicator. OBV relates volume to price change, indicating if volume flows into or out of an asset, helping gauge the strength behind price moves.

Long Signal Setup:

1. A new green Renko bar forms above the 10 SMA.
2. Only take trades aligned with the SMA direction (look for longs when bars are above SMA).
3. Confirm with OBV: Look for a new high in OBV, indicating buying pressure supports the price increase. An upward trend is confirmed when OBV rises with price.
4. Stop Loss: Place 2 Renko bars below the entry point.
5. Exit: Manually exit if price falls below the 10 SMA, or use a predefined target.
6. Minimum Take Profit: Aim for at least 3 Renko bars to cover costs. Consider moving stop loss to break-even or using a trailing stop after reaching the initial target.
7. Tip: Look for an upward sloping 10 SMA for higher quality signals.

Short Signal Setup:

1. A new red Renko bar forms below the 10 SMA.
2. Only take trades aligned with the SMA direction (look for shorts when bars are below SMA).
3. Confirm with OBV: Look for a new low in OBV, indicating selling pressure supports the price decrease. A downward trend is confirmed when OBV falls with price.
4. Stop Loss: Place 2 Renko bars above the entry point.
5. Exit: Manually exit if price increases above the 10 SMA, or use a predefined target.
6. Minimum Take Profit: Aim for at least 3 Renko bars. Use similar exit management as long signals (break-even, trailing stop).
7. Tip: Look for a downward sloping 10 SMA for higher quality signals. Pay attention to the broader market trend (long-term up or down).

Conclusion: Leveraging Renko for Better Trading

Renko charts provide a unique perspective on Price Action Analysis by filtering noise and emphasizing significant price movements. Combining Renko with tools like the SMA and OBV creates a structured strategy that can improve trend identification and trade confirmation. Pay attention to the SMA slope and overall market context for optimal results. This approach can be a valuable addition to a Smart Money Trading toolkit, promoting patience and disciplined execution.