Renko Bar Trading Strategy

Renko Bar Trading Strategy is a type of charting technique that disregards time and focuses only on price movements. Renko charts are designed to filter out market noise and help traders identify prevailing trends more accurately. Renko charts are believed to have originated in Japan, and they are plotted as a series of bricks, representing price movement. Each block is positioned at a 45-degree angle to the prior brick, and an up brick is typically colored white or green, while a down brick is typically colored black or red. In this article, we will explore how the Renko Bar Trading Strategy works and how it can be used to make more informed trading decisions..

What is the Renko Bar Trading Strategy?

The Renko Bar Trading Strategy is a unique charting method designed to filter out market noise and help traders identify prevailing trends in the market. Unlike most chart types that use time-based price movements, Renko charts focus on a specific range of price movements. Renko charts consist of a series of bricks positioned at a 45-degree angle to the prior brick, with each brick representing a fixed price movement rather than time. The chart is commonly used for trend-following and is known for filtering out small price movements, allowing traders to focus on larger trends. The Renko chart’s brick size can be customized to determine price reversals and identify support and resistance levels. With this charting method, traders can easily determine the current price direction based on the color of the most recent brick

Renko Bar Trading Strategy Strategy

The Renko bar trading strategy is a trend-following strategy that utilizes the Renko chart to identify potential entry and exit points. Since Renko charts filter out market noise and focus solely on price movements, they are a great tool for identifying trends. To use this strategy, traders should identify a support or resistance level on the Renko chart.

Renko Bar Trading Strategy
Renko Bar Trading Strategy

The entry signal would be when the Renko chart prints a brick in the opposite direction of the prevailing trend. If the brick is printed at a support level, it increases the likelihood of a successful trade. For instance, if a resistance level is identified, traders may wait for a bearish (red) brick to form around that level as a potential entry point for a short trade. They may then ride the trend down for a long time using the Renko chart. For the exit signal, traders can wait for the Renko chart to print a brick in the opposite direction of the trend, such as a green brick, before closing the trade.

Buy Signal

  • Identify a support level on a Renko chart where the price continually turns higher near a certain price area.
  • Watch for the Renko chart to print a green brick from around the support level, indicating a change in trend.
  • Open a long position when the green brick is printed.
  • Set a stop loss a few pips below the entry brick or according to your money management strategy.
  • Trail your stop loss behind each brick in the direction of the trend until you are stopped out

Sell Signal

  • Identify a resistance level on a Renko chart where the price continually turns lower near a certain price area.
  • Watch for the Renko chart to print a red brick from around the resistance level, indicating a change in trend.
  • Open a short position when the red brick is printed.
  • Set a stop loss a few pips above the entry brick or according to your money management strategy.
  • Trail your stop loss behind each brick in the direction of the trend until you are stopped out.

Renko Bar Trading Strategy Pros & Cons

Pros

  • Renko charts effectively filter out market noise, allowing traders to focus on the larger trend.
  • The brick size of a Renko chart can be customized according to the trader’s preference, allowing for flexibility in trading.
  • Renko charts are useful for identifying support and resistance levels and can be used in conjunction with other technical indicators for a more comprehensive analysis.
  • The simplicity of Renko charts can be appealing to traders who prefer a clean and straightforward chart.

Cons

  • Renko charts do not take into account time, which can be a disadvantage in certain situations where time is a critical factor.
  • Renko charts can be slower to respond to sudden market changes compared to other chart types, as the specified brick size needs to be met before a new brick is plotted.
  • Renko charts may not be suitable for all trading styles, as they are primarily designed for trend-following strategies and may not be effective for range-bound markets.

Conclusion

In conclusion, the Renko Bar Trading Strategy is a unique charting technique that can be used to filter out market noise and help traders identify prevailing trends in the market. By focusing on price movements rather than time-based movements, the Renko chart is effective in identifying support and resistance levels and can be used in trend-following strategies. However, like any Renko trading strategy, it has its pros and cons. While the Renko chart may be effective in reducing market noise and improving clarity, it may also require a considerable amount of time to master, and its effectiveness may vary depending on the trader’s preferences and market conditions.


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