Trading with Renko Charts
Renko charts are a form of chart types, besides the frequently used Candlestick charts, line charts and the OHLC bar charts. Renko charts are as ancient as Candlestick charts, and are yet another contribution by the Japanese. The word, Renko comes from the Japanese word of Renga for Brick and that is how the Renko chart is formed, in bricks or boxes.
Renko charts take into consideration only price and therefore considered to be pure price action charts. Unlike other chart types such as Candlesticks or line charts, where price and time is considered, with price plotted on the y-axis and time on the x-axis, with Renko charts only price is considered.
Configuring the Renko Chart
The Renko chart can be configured to adjust the box size. This can be specified by the trader. So a box size of 0.0005 would infer a Renko chart with 5 pip box size or 0.005 would be a 5 pip box size for a Yen pair.
Besides the fixed box size, Renko charts can also be configured to dynamically use the ATR value. The default setting is an ATR (14). The ATR method for fixing the Renko box size is used so as to capture the current average true range of price. An ATR is usually ideal for creating Renko boxes for stocks. For forex markets, using a 5, 10, 20 pip fixed Renko box size is ideal.
Why trade with Renko Charts?
Renko charts are pure price action based charts. Therefore trends, support/resistance are easier to spot with Renko charts
Traditional chart patterns such as Head & Shoulders, ascending descending triangles, double tops and bottoms and so on are easy to trade
Harmonic trading patterns like Gartley, Crab, Bat, etc can be easy to spot
Fibonacci levels are easy to identify (What is Fibonacci Trading?)
The only downside to using Renko charts is that if price moves in a tight range, the Renko chart is not updated with any new bricks. Also when a trade is entered, time is no longer a factor for the stops or the target levels to be reached.
Simple Renko Trading Strategies
There are many Renko trading strategies, but here we outline a few of the simplest Renko trading strategies that traders can use.
Renko Trend line break Trading
Renko Support and Resistance Trading
Renko Chart Patterns Trading
Renko Charts with Indicators
Renko charts are very easy to understand and it is simple to understand price action trading with Renko charts.. Any trading method that you currently use to Candlestick or line or bar charts can be very well applied to Renko charts, as long as the strategies are not time dependent.