How to Use Renko Charts
Ask any trader on what is one of their most common issues with trading and you often find the one common issue being unable to manage their losing trades, while cutting out their winning trades a bit too early. This aspect has to do not just with the trading system in question, but also the psychology of the trader and confidence in their trading. Sometimes, no matter how confident one is, the market regularly shakes you out and puts you off guard. This obviously results in bigger losers than winners and leading to a strong drawdown or perhaps even liquidating your trading capital completely.
One of the key factors to be successful in trading is to ensure that you keep your losing trades small while leaving your winning trades open so that you can maximize your profits. But is there a way to overcome the psychological obstacles and the market fear to do so?
Market “noise,” or price fluctuations can trigger the fear response in traders which causes traders to exit, what would have otherwise been profitable trading positions. One way is to make use of a charting system that can eliminate this noise.
Introducing Renko Charts
The word ‘Renko’ originates from the Japanese word, Renga which means ‘Brick.’ The Renko charts are unique in the way they plot the market price. They are also distinct because only price is considered and not time (other similar charts include the Point and Figure charts). Renko charts offer a simpler view of the markets and most importantly the trends. It helps traders to get a clearer view of the price action, the trends leaving it easy to interpret price and thus be able to trade better. Renko charts can be applied to any markets and any time frame. There are quite a few traders who use the Renko charts on futures, commodities, equities and currency markets.
The bricks are formed as Red/Green or Bullish/Bearish bars. Every time price moves a certain numbr of ticks or points in the direction, a new Brick or Renko is formed. Thus, it is now easy to understand that when prices are trending strongly in one direction, the Renko chart can plot the trends very easily and any pullbacks in the trends are also easier to spot. Perhaps one of the advantages of using Renko charts over other conventional price chart types.
For example, if you are trading the stock for Apple Inc using Renko charts, you could make the brick size setting to $2.00. If Apple’s share price moves up by $2.00, you would see a new bullish brick formed to the right, and higher than the previous one and of course $2.00 higher. As price continues to move up, another bullish brick is formed. Only when price declines by a full $4.00, a bearish renko brick is formed.
Trends are easily spotted using Renko charts and you do not need to use any other indicators such as moving averages or so on to understand the trend in the markets. Combining the trends with support and resistance or supply/demand levels can be a great way to buy the dips in a rally or to sell the rallies in a bearish market.
In conclusion, if you are looking for an approach to charting the markets devoid of the noise in an effort to cut your losses short and your winners going steady, then try using Renko charts, which can offer a different perspective of the markets.
Learn to trade with renko charts. Visit renkotraders.com to learn about trading with renko charts, understanding the basics of price action with this unique chart type as well as lots of free to use trading indicators.