Renko charts trading tutorial – how to trade with Renko
This is a practical guide which will help you to use Renko charts.
Remember that you can check also Renko chapters in Forex trading strategies guide.
Renko is another kind of candles. The most popular are candlestick charts, but there are many others types of charts created in Japan. There is for example Kagi, Three Line Break or Renko chart. Lets focus on Renko.
How Renko chart is build?
Chart is constructed by placing a brick once price surpasses the top or bottom of the previous brick by a predefined amount. Renko chart is time and volume independent – if there is no condition to draw another brick then chart may stay the same for days (until condition to draw another brick is created). White brick means the move is up, black the move is down. With Renko it is easier to spot trends and avoid trading when market is flat.
Charting programs with Renko
Renko is not available in every charting program, so it may be not that easy to get Renko charts. For example if you are using MetaTrader to trade Forex, there is no Renko chart. Bellow you will find programs that I tested. There may be more trading software with Renko, you can let me know if I omitted something.
Renko charts in Forex
The biggest problem is when you want to trade Forex with Renko charts. Then I suggest programs:
TradeStation – it is easy to change to Renko chart, there is no demo version so you have to open an account
NinjaTrader – comes with Renko, but in my opinion NinjaTrader is not an easy program for not-advanced users.
Renko charts in stock trading
If you are trading stocks and want to switch to Renko charts then try these programs:
Metastock – it has very nice build in Renko charts, major minus is high price for Metastock
TradeStation – they have stocks, futures or commodities in offer so you can use Renko on every market. Minus is that there is rather large minimum funding to open an account and there is no demo account.
Stockcharts.com – they have Renko as an optional chart type. Basic charts are free to use, but you may want to check out premium version (larger charts, more options). There is a small monthly fee for premium version, but still this is one of the cheapest way to get Renko charts.
Popular charting programs without build-in Renko:
Renko in MetaTrader 4 and 5
As you now, there is no Renko chart in Metatrader. Still, it is very popular charting software and you might want to have Renko. I was looking for a long time for Renko indicator for MT4. There are some custom Renko indicators for Metatrader, but most of them are shitty. There is only one Renko indicator for Metatrader which is good. You can find it here (not affiliate link). You have to sign there for a newsletter, but you will get Renko charts.
Renko is slow… or not?
There is a popular opinion that Renko charts are slow, so you make trading decisions later then other traders. If you want to (and can…) catch every dip and high then this is not the tool for you. Do not forget how Renko chart is build and why you are using it. With Renko it is all about catching trends. You may be not the first one to enter a trade and not the first one to exit, but in a result you can catch quite big moves and make nice profit from them.
Let’s check bear market from 2008 – how did it look with Renko charts? Below we have monthly chart of S&P500:
“Oh, such a long time frame…”. Yes. This way we can check, if there is a bull or bear market.
As you can see, there was a clear change in trend direction in 2003 when bull market started. In 2008 something happend and price failed to make new high – in fact two important supports were broken and we saw a very strong sell off. If you were hunting for the low of bear market, you could do this with Renko.
I hope that now you understand that well used Renko chart can be a great tool. It is not the fastest indicator out there, but still it is a good one.
Check it in practice. If you do not like Renko, then just do not use it. Remember, never blame charts or software for your loses.
It is the biggest problem with Renko charts, because it is up to you which size will you use. Sometimes it may be confusing. You have two options when it comes to setting up Renko – average true range or absolute points. Some charting programs allow you to draw Renko based on ATR indicator. In that case you stick with default 14 value or something near that.
Most charting programs have only absolute points parameter. In that case you have to manualy provide number of points for each brick. In other words, you have to know how big each brick should be. How to do that? The most common method is to set brick size at 1% * current price value. So let’s say that S&P500 value is now around 1800. 1800 * 1% = 18 and that is your brick size. Sometimes I go little lower, even to 0,5%, but it depends from current chart. You simply define brick size and check on previous data places where price change direction. If it wasn’t to slow, then you are good to go.
Renko with support and resistance levels
Great thing about Renko is that it helps you to find important support and resistance levels. There is no noise on chart, so it is rather easy to find these levels.
Remember, there are no wicks like in normal candles so it may not be precise to every decimal point.
Signal to buy and sell
Many traders think that signal to buy is when there is a change in color from black to white. You can trade like this but this system is far from being perfect. In my opinion the best way is to join Renko with other indicators (more about it later). When you make decision based on chart remember that sometimes there may be added two or more bricks at the same time. Lets say that the condition to create new brick is a price move up or down for 2 points. Suddenly, there is a spike and price rocket 7 points up. There will be 3 bricks added at the same time.
Tip: to spot places where there are more bricks added, try to combine chart with volume:
When there are to many bricks added at the same time, then you may have to edit parameteres.
Old methods like entering a trade on a breakout are a good ideas. As was said before, Renko is great to spot resistance and support levels. When price breakout over resistance line, it may be a good place to enter a trade.
Renko strategy – join Renko with indicators
In my opinion, the way to get most from Renko is to join them with indicators. Below you will find some ideas which may inspire you to do some experiments.
First of all, remember that Renko chart is time independent. That is why indicators will look different (they are based on price from charts) and will give other signals then indicators joined with normal charts. Following example will tell you better what I mean. This is a normal chart of daily S&P500 (January 2013 – current), notice signals from CCI (55):
And this is the same chart, but with Renko (brick size: 15 points). CCI has the same parameters as before, time frame is the same, but because of different chart it gives other signals:
There is no one easy to go setup. It depends strongly from market (stock/forex), time frame (intraday or daily, weekly, monthly) and your strategy (trend following/swing trading). You know the best your preferences. Try to combine your favorites indicators with Renko. Study historical charts, tweak your indicators and test your system in practice. I had pretty good results with basic indicators such as MACD, Williams %R and CCI.
If you want to read more about building trading plan with Renko and indicators, check this article. It is a nice example how you can combine Renko and Stochastic.
Renko with moving averages
This is my favorite part of trading with Renko. Good idea is to plot some averages, so the main trend (or lack of trend) is even better visible. You can draw few most important averages such as 10, 21, 55, 100, 200:
Signal to enter may be a cross of two averages (10 and 21 for example) or new brick above average.
You can also create something like rainbow chart or GMMA, for example bellow is Renko chart with GMMA and 100, 200 averages:
I like to trade with GMMA and Renko. I add to this 100 and 200 moving averages. I also look for confirmation from indicators such as MACD or Williams %R.
Renko is a great chart. It is not for everyone. In the beginning it may be little confusing. The most important thing is to select right brick size. Study historical data and try different combination. Test different trading strategies. As I’ve mentioned before, I use Renko with GMMA and some indicators. I trade with it in stock market with good results. It is really great tool to catch longer trends (and that way I have time to focus on FOREX 😉 ).