Trading Renko charts Successful trading is based on trader’s emotionless state and simplicity. Clear vision, simple actions are everything what require in trading. Complicated views, especially predictions, make successful trading very hard task. By successful I mean consistent. My trading method is based on the two lines (and I called it – Two Lines Method). Those two lines are Support and Resistance. Buy support, sell resistance. Time from time is very hard to see clear picture and support and resistance are never just one number, usually there is support or resistance are, which can be 50 pips (FOREX) wide. Renko charts do great job to clear the market’s “noise” and whole picture of the market’s price action very well defined. Take a look at the example (0.1% box; AUDCHF daily chart):
Green area is a consolidation as a base for the new trend up. And trend remained up for few months until clearly visible consolidation has appeared on the chart at 1.0330 levels. Break down from that consolidation led to the ex-resistance at 0.9544 and that area became support and double bottom has been drawn. But after that price did not go very far to the up side and at resistance level 0.9845 turned to the down side, later came back up and back down again. And now price is on the same support level 0.9536. All this looks good, but how to make a trading decision? Should we buy here? Or should we sell? I cannot give an answer in the single article, there are many situations. But I will analyse this current situation to give some idea.
My renko chart set up is 0.1% for FOREX market 1,4 and daily charts; and 0.5% for equities daily charts. First of all, I do not buy or sell just because renko chart tells me, but I do use renko chart to get into the market. I buy when renko box changes colour from red to green and sell when renko chart box changes from green to red. Renko chart is a good way to clear â€œunnecessaryâ€? price action. By looking at the renko chart I can see that we are close to the support 0.9536 and possible bounce from here up to resistance 0.9845. Or, this support will be broken and market will continue to another support 0.9338. We will never know that exactly market has in mind, but trading is mostly about probabilities, not certainties. When market comes to support I am looking only to BUY and when market approaches resistance I am looking to SELL. So, at the moment I am looking to buy and my initial target is 0.9845. To get long position I am using 1 hour chart.
1 hour chart has a broken trend line and now it is in consolidation. Is not bad set up and going above last green box on renko chart will be my entry point, in this case if 1 hour chart will close above 0.9557, I certainly will be long on this currency pair. On the way to my target chart has another resistance around 0.9657 and last target is not like on daily chart (0.9845), but little bit lower â€“ 0.9828. That is all for entry.
Now letâ€™s talk about stop loss. Stop I always place below last low (or last high if selling), but not on the renko charts. I do check bar chart to find lowest price just before my entry has been executed.
Bar chart is good help to find stop loss levels and in this case it would be at 0.9505 (below last low before entry 0.9513 and minus spread = 0.9505). This is just one way I use renko charts and I have few entry set ups. But in this example is just a typical use of the renko chart by me. Renko charts are very useful to add positions in the trend as well.
Below is an example of the position I took yesterday, AUDJPY.
Weekly resistance 88.35, consolidation is this area, broken support on 1 hour chart at 88.25, came back little bit up, set sell stop order 88.25, stop is 88.60, target is 86.20. Market moved down and current short term consolidation should create another lower high, where trader should lower stop loss order. That would be simple example how to use renko chart in real time trading. There are many small details, but general information is presented here. At least I hope so. I wish you best trading experiences.
Published on Dec 21, 2012