Renko Breakout Strategy is based on the principle that when the market breaks through a significant level of support or resistance, it tends to continue moving in the same direction. By using Renko charts, traders can filter out noise and focus on the key price movements, making it easier to identify and trade breakouts. In this strategy, traders typically look for strong levels of support and resistance.
What Is The Renko?
Renko charts are the tools used by traders to analyze price action and make trading decisions. Renko charts originated in Japan and have gained popularity among Forex traders due to their simplicity and effectiveness in filtering out market noise. Renko charts offer a different perspective on price movements, as they are based solely on price action and do not consider time or volume. In this introduction to Renko for Forex, we will explore the basics of Renko charts, how they work, and why they can be an addition to your trading toolbox.
Strategy of Renko Breakout Strategy
Here’s a simple Renko Breakout Strategy that you can use in forex trading:
Set up a Renko chart:
- Start by setting up a Renko chart on your trading platform. A Renko chart uses bricks or blocks to represent price movements, and these blocks are only added to the chart when the price moves a certain distance, rather than on a fixed time basis. This means that a Renko chart can filter out the noise of minor price fluctuations and highlight important price levels.
Identify key support and resistance levels:
- Once you have your Renko chart set up, identify key support and resistance levels on the chart. Look for areas where price has previously bounced off or broken through. These levels can act as potential breakout points.
Wait for a breakout:
- Next, wait for a breakout to occur. This is when the price breaks through a key support or resistance level on the chart.
Enter the trade:
- Once you have confirmed the breakout, enter the trade. You can use a market order to enter immediately, or you can use a pending order to enter at a specific price level.
Buy Signal
Look for a bullish Renko brick:
- The first step in identifying a buy signal is to look for a bullish Renko brick. This is a brick that is colored green or white, and it indicates that the price has moved up by a certain distance on the Renko chart.
Identify a key resistance level:
- Next, identify a key resistance level on the Renko chart. This is a level that the price has previously struggled to break through, but it is now being tested again. This resistance level should be significant and visible on the chart.
Enter the trade:
- Once you have confirmed the breakout, enter the trade by buying the currency pair. You can use a market order to enter immediately, or you can use a pending order to enter at a specific price level
Sell Signal
Look for a bearish Renko brick:
- The first step in identifying a sell signal is to look for a bearish Renko brick. This is a brick that is colored red or black, and it indicates that the price has moved down by a certain distance on the Renko chart.
Identify a key support level:
- Next, identify a key support level on the Renko chart. This is a level that the price has previously struggled to break through, but it is now being tested again. This support level should be significant and visible on the chart.
Enter the trade:
- Once you have confirmed the breakout, enter the trade by selling the currency pair. You can use a market order to enter immediately, or you can use a pending order to enter at a specific price level.
Renko Breakout Strategy Pros & Cons
Pros
Clear trend identification:
- The Renko chart makes it easy to identify the direction of the trend. By focusing only on price movements and ignoring time, the Renko chart provides a cleaner view of the market and reduces noise.
Objective entry and exit points:
- The Renko Breakout Strategy provides clear and objective entry and exit points based on the breakout of key levels of support and resistance. This can help traders avoid emotional decision-making and improve their trading discipline.
Easy to understand and apply:
- The Renko Breakout Strategy is relatively simple and easy to understand, making it accessible to traders of all levels. It can be applied to various time frames and currency pairs.
Cons
False breakouts:
- False breakouts can occur, which means that the price breaks through a key level of support or resistance but then quickly reverses. This can result in losses if the trader enters the trade based on the false breakout.
Limited trading opportunities:
- The Renko Breakout Strategy may not provide as many trading opportunities as other strategies. It requires patience to wait for a strong breakout to occur before entering a trade.
No fundamental analysis:
- The Renko Breakout Strategy focuses solely on technical analysis and ignores fundamental factors that may affect the market. This can limit the trader’s perspective and potentially lead to missed opportunities.
Conclusion
In conclusion, the Renko Breakout Strategy can be an effective way to identify and trade breakouts in the forex market. It offers clear and objective entry and exit points based on key levels of support and resistance, and can generate potential trades. However, traders should be aware of the potential drawbacks such as false breakouts, limited trading opportunities. It’s important for traders to conduct their own analysis and develop a solid risk management plan when using the Renko Breakout Strategy or any trading strategy.
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