What are Renko charts? Find out how to trade Renko Charts successfully

Are you interested in how to trade Renko Charts successfully? Watch our latest video and learn what are Renko Charts and how to make a profitable Renko strategy.

How to trade Renko Charts successfully – Renko Chart trading strategy

Hello, and welcome to Diary of a Trader. Today, we’re going to go over Renko bars and how they are traded, how they’re different from candlesticks and what are some good strategies to use with them. What we’re looking at right here and I would suggest you go to a brand new chart in TradingView, and I’m just looking at the XAU/USD chart, and this is the Gold-Dollar CFD chart. And I have a regular Candlestick chart and we are pretty familiar with it. This is a very common way to look at the markets. If we look here, we see that one Candlestick represents a period of time and that the time spent or the price activity inside of it kind of tells us a story. So, a Candlestick does not form until a certain amount of time has completed. And so, we are on a one-hour chart, and so, a candlestick will not form until the whole hour has passed.

Now, an alternative way to look at charts and price action is something called, Renko. Now, Renko charts, they are different, in that they do not account for time at all. Time does not matter, alright? Renko is formed using bricks. So, you can see these are just square or rectangular bricks that form, and how these are created is using a set amount of points or pips or satoshis, however you want to call them. For right now, a brick in this chart will only form when $5 worth of movement have been traded. So, if I look here, and the box size or the brick size, they call it “The Box Size”, the size of the box of the brick. I want to say is $5. Or, actually, let’s change it to $10…Eight. So, it’s $8 and… Actually, let’s just stick with $5, it’s a little easier. So, we’ve got a $5 Renko brick setup. And so, what that means here is, if we look, is that, right here, if we look at the open that up here, in this corner here, we see that the open was at 1250 and that the close was $5 above that. The close is at 1255, and the one after this, opened at 1255 and it closed at 1260. So, you can see that every $5 of movement, we see price moving up. The same thing applies to a down move. So, when price has moved down in Renko charts, it has to move down $5. And, so, we have an open at 1270, close at 1265, so the next one means we opened at 1265 and closed at 1260 and so forth. Now, what makes Renko so important, and what makes it so effective is that when it changes color, it’s kind of a big deal. It’s not just a random thing that happens, because if I look here, it says, well, I went from red to green, so I moved $5. You didn’t, really, though. Because remember, this red brick had to move $5 down, to create a red brick. So, then, it had to move $5 up, and then another $5 up to form this green brick. So, we had to move $10 of movements, so twice the normal Renko brick, in order to finally create the new brick, alright? And then it moved up. Before, frankly, falling back down.

But we can see that in the great majority of cases in large trend changes, we can see that the change of color of Renko bricks, indicates a high probability of a trend change in the long and short term. The trick is, you know, we cannot really trade off of this, by just saying, well, whenever a Renko brick changes color, then I’m going to take a trade. We need to use other sources of analysis. So that’s where using some type of indicator is going to come in handy. So, maybe the Stochastic RSI would be of help, and maybe the RSI itself. And so, what we want to look for and what we should probably draw first is, I’m pointing this out, that Renko, compared to candlesticks, it reduces a lot of noise. And it’s easy to spot and plot areas of support and resistance, so, you know, I can see that there’s been a lot of price activity traded in that area, I’ve seen that we’ve got some double tops around this area, we’ve had some lows and support found down here. Probably, in this zone too. And when we’ve had those drawn and we see how price responds to those zones, if we have pre-determined areas of pivots, we can just look at our chart’s price action with the Renko and let’s compare it to what is happening with some of our oscillators and our indicators. So, I see right here that price was trading up and then it fell down, and then I noticed that the Stochastics was in this extreme condition of being oversold. But the RSI was not yet. The RSI was still in a position to say, “Hey we are weakening, but we’re not really overdone yet.” So, while the stochastics stayed, which it often does, it stays in this oversold condition, the RSI came to here, and it got right on top of that real default zone for being oversold. And then, when we had it slope up, we had our first indication that prices were changing and when that green Renko brick formed, we knew that we had a high probability of an uptrend to go and continue for a while. We can see this repeated over and over.

This is a very simple, easy and effective strategy that you can use and implement into your trading. Again, Renko is a very, very simple way to view the market and to trade the market and it’s less noisy. You don’t have to do a lot of interpreting with Candlesticks, you don’t have to do a lot of guesswork with the Candlesticks either, because this price action here, if we highlight it, this entire price action in this area, all of this is no different than all of this, alright? Do you see how much different that is. This highlighted zone that I highlight in Renko is the same as this highlighted zone with Candlesticks. So, I would leave it to you to determine which of these seems less stressful to trade. One is a whole lot cleaner, the other one is a lot messier, and if anybody who trades Candlesticks on a regular basis knows, you can get really frustrated with the Candlesticks and how they move and you can get stressed out and exit or enter trades too early or late. Renko really keeps you focused on just the price and following a few rules make this a very profitable charting style and a very profitable trade strategy. Thank you for watching! Bye-bye.