Profitable Renko Strategy – Build Your Account, One Brick At A Time
The profitable Renko strategy is designed to remove much of the market noise generated by the standard candlestick charts. If you are tired of using the same old Japanese candlestick charts, we would like to introduce you to the Renko charts. By using Renko charts, we remove the time element and focus only on the price that isolates the trend.
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If you are actively trading the markets (scalping, day trading), it is important to have a methodology to eliminate the noise from the market. The Renko trading strategy is time independent and gives you an eccentric way to view price action.
Although the free Renko charts can be used across different asset classes, including cryptocurrencies, our simple Renko system is designed, but not limited, to be used in the Forex market.
In this trading tutorial, we are going to teach you what Renko charts are forex, how to use Renko charts in your trading, and how to optimize the Renko brick size.
What are Renko Charts?
A Renko chart is a technical instrument or a type of chart that is built using only price data. Unlike the Japanese candlestick charts, which are built with price, time and volume, the Renko chart only measures price movement.
Renko has no time dimension.
Renko charts are not some long hidden secrets dating back to feudal Japan times as some trading gurus would have you believe. Renko bars were actually developed several decades ago.
The name Renko means brick in Japanese and comes from the word “renga.” These cards are sometimes referred to as brick cards by dealers.
Steve Nison, who is the father of modern candlestick charts, is the man who actually introduced Renko charts to the general public. These charts are often compared to traditional candlesticks, but there are some important differences. While candlestick charts are variable, Renko bricks are equally sized.
The simplified bricks found in Renko charts make it easier to read the market and make quick decisions. These charts are ideal for day traders, although they can be used by traders on any time frame. By removing the noisy parts of the candlestick chart that apply to longer-term trading strategies, Renko charts make it possible to determine where the market is actually moving.
Check out the difference between the popular Japanese candlestick chart and Renko chart live below:
The difference between the two types of cards is very visible. The Renko chart does a much better job of smoothing the price action.
Let’s go a step further and learn how Renko bricks are formed.
In order to use a profitable Renko strategy, you need to understand the basic basis of a Renko block
Each candlestick on the Renko chart is called a brick because it is shaped like building blocks. The rectangular bricks used to build walls are roughly the same. The same goes for Renko charts; each brick is the same size. The user determines the size of a Renko brick.
How to Read and Build a Renko Trading Chart
Reading a Renko chart is simple. Because the bricks have a fixed size, they can all be easily compared to each other. The color (and direction) of the Renko brick will change once the value of the previous brick has been exceeded. This indicates to the traders that trends are changing and that the price is likely to swing in the opposite direction.
Each brick represents a price range (example – $0.25). Although the bricks are evenly distributed in the same chart, they can be adjusted to your trading goals. Individuals who open and hold longer, high shell positions will use different brick sizes than pen day traders.
We recommend using the Average True Range – or, ATR for short – to construct each brick. The ATR is derived from the closing price of the stock. This means that a Renko chart is a trailing indicator. In the next step, we will show you how to read Renko bars.
Comment no. 1: when using Renko bars with sticks or tails, some bricks may display additional spikes at the top or bottom of a brick. But the brick size remains the same.
On the Tradingview chart platform, you can go to Chart Settings – Style – Wick and choose how to display the bricks, with or without wicks.
Before we return to the Renko bricks with wicks, we give you the basics or the basis of a Renko brick.
We have already established that the brick size is predetermined by the user. If you are trading with Renko charts, and your preferred brick size is 20 pips, bricks form only when the price moves up or down by 20 pips.
The best way to illustrate this concept is to look at Renko blocks through the eyes of the candlestick charts. In the below 5 / minute candlestick chart of EUR / USD, we have highlighted areas of price price movement of 20 pips.
A Green Renko brick will only form after the price rises 20 pips. Conversely, a red Renko brick would form only after the price dropped 20 pips.
As you can see, the time intervals between each brick are inconsistent.
In our EUR/USD example, the length of time it takes to print one Renko block can vary from 20 minutes to 1 hour and 45 minutes.
It is clear that Renko is less noisy and much of the noise is between the swing low and swing high.
Important Note: If you are trading Renko charts, the price must travel twice the price distance of your brick size for the Renko brick to change color.
For example, if the brick size remains 20, it means that we actually have to move 40 pips to push a red brick after we had a green brick.
Let’s go back for a second to why some blocks have gates?
Trading Renko charts with wicks can be a very powerful tool in your trading arsenal. Bricks with posts give us further clues about the battle between the bulls and the bears.
A ribbon is only printed on a Renko brick if there is a strong attempt to achieve a reversal (a change of the brick’s color from green to red and vice versa) but it fails. The fuse will simply show you how many pips it has gone in the opposite direction.
Note #3: a fuse is only pressed on a brick if the price moves in the opposite direction of the previous candle by at least the length of the brick measure +1.
Let’s see how you can optimize the Renko block and how to choose the right Renko brick size.
How to choose the right Renko brick size?
If you don’t know the right size for Renko charts, then we have a solution.
If we want a dynamic reading of the price through the Renko blocks, we can use a brick size determined by the ATR (average true range). Instead of choosing a random brick size, it will give you dynamic support and resistance levels that are more accurate.
The ATR will automatically detect the correct brick size that better matches the price action.
Note #4: The downside of using an ATK based Renko chart size is that when the ATR value changes, your Renko bricks are redrawn to reflect the new changes.
When choosing your Renko brick size, ask yourself the following questions:
- What are my goals as a trader?
- What are my time limits? What are the costs of trading?
- Do I open small positions or larger positions?
- Do I consider myself risk tolerant or daring?
If you are pursuing large, lower-risk positions over longer periods, it makes sense to use a larger Renko brick size. On the other hand, if you are pursuing high-risk positions that need to watch out for fine volatility, smaller bricks will be better.
Let’s learn how to trade the Renko chart the right way.
Simple Renko System
We are going to suggest two trading strategies that you can use with the Renko blocks. The first simple Renko system is an indicator-based strategy that uses price-momentum divergence to identify trend reversals.
Renko Trading Strategy #1
For this Renko trading strategy we only need to use the RSI indicator. We like to use a 20-period RSI indicator. So the period is the same as the ATR Renko brick size.
See the Renko chart below.
After spotting the momentum divergence, an entry signal is triggered once we get a reversal. On the Renko chart, a trend reversal is triggered as soon as the brick changes color. In this case, if we spot a bearish divergence, enter a short position after the brick turns red.
Wait for the brick to turn green for bullish divergence.
We exit our profitable trade as soon as a reversal pattern is formed again in the opposite direction of our trade. As a method to protect our account balance and not lose too much, you can place your SL above and below the swing point developed after your entry.
Much of the noise inherent in ordinary time-based maps is eliminated. Therefore, when trading with Renko charts, it is much easier to see divergence and trend in trends. The RSI is the best indicator to use with Renko.
Renko Trading Strategy #2
Another profitable Renko strategy you can use is to focus only on the bricks.
No additional technical tool is required for this system.
We are going to examine a very simple yet powerful Renko chart pattern that features the fuses. This Renko price pattern looks for two consecutive bricks of the same color and both bricks have wigs.
The location of this Renko pattern doesn’t really matter. It can be at the end or in the middle of a trend. This pattern has a very high success rate if traded in the right context. You need to watch these two brick patterns and make sure that the blocks do not move back and forth within a trading range.
If not, then you have a green light to take the signal generated by this trade setup.
The entry is on the third brick after the two bricks that have fuses. The stop loss can be placed above the fuse and exit as soon as a reversal pattern is produced.
Conclusion – Renko Trading Strategy
Renko bars ensure you have a cleaner and neater version of price action. If you find it difficult to read price on a candlestick chart, it may be time to look in a different direction. Trading with our profitable Renko strategy may be the best fit for you.
We truly believe that Forex Renko charts are more suitable for traders who still struggle to analyze a candlestick chart. The Renko trading strategies presented by this trading guide are only an introduction to the world of Renko bricks. We hope that you now have a clear idea of what the possibilities are by using this new mapping technique. Don’t forget to read our chart pattern trading strategy.
Thanks for reading!