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Monday, September 25, 2023

Using Renko Charts in Your Trading


Renko charts are being widely used across the trading and investing sphere because of their flexibility and technical superiority. By eliminating the dimension of time, traders can more closely associate price fluctuations with macro-trends. 

The resulting chart shows a more nuanced picture of the market, with direct correlations to price upswings and downturns. Renko charts can, therefore, be used as a regular part of your investing practices.

What are Renko charts?

Renko charts are price-based charts used extensively across trading outlets. Investors would often remove the time dimension and closely study the price fluctuations as they are. This allows them to get a deeper look into how a certain stock or commodity trades over different price variations.

Renko translates to “brick” in Japanese, and the practice essentially uses brick charts that don’t have time mapped to them. They have a consistent wick, when compared to more traditional candlestick charts, and are much easier to read if you’re trying to gauge the market.

Core advantages of Renko charts

Renko charts are quite effective when it comes to short-term trading. Investors can get a quick sense of the market, and then make the right call in terms of pricing correctly. They provide clarity when traders need it the most, especially when investing across multiple markets. The clear representation of the price points within the market make it that much easier to make the right call.

They are also a great way to get acquainted with a market. Traders who aren’t familiar with traditional candlestick charts can leverage the simplicity of the renko chart when investing. Traders can create an adaptive trading strategy based on the insights provided by the Renko charts for a particular market.  

Renko trading strategies for investors

Renko charts are perfect for trading while making fast decisions. These trading tools can help the savvy investor get baseline data about how well a commodity or stock is performing. From there, they can make price-based decisions first before jumping into what the perfect time for a trade would be. Also, if you’re just getting into investing your money into different ventures, you may benefit from looking into investment guides like these provided by SoFi or elsewhere that can also provide you with relevant financial information.

By eliminating the dimension of time, much of the noise within the chart is removed, giving you a cleaner data set. They can help you determine where the market is moving long term, because you can analyze data based on price across a fixed period.

Because the bricks are of the same size, they can be compared with one another over different trades. Each brick can represent a fixed amount of price fluctuation, which can be used to gauge the movement of the product. By using the average true range, traders can get a consistent data set when it comes to Renko.  

Traders can use a relative strength indicator when trading with the Renko strategy, to get started using this powerful technique. By leveraging a 20 period RSI, an extensive Renko map can be constructed. When a momentum shift is spotted, an entry signal can be triggered using the technique. If you’re bullish on a trade, then waiting for the brick to signal green can be helpful.

Traders can also focus on the bricks, exclusively, to reach the right price for the trade. An entry point can be determined on the third brick that has two bricks before it with a strong wick. An added stop-loss can be placed as well, which will be added above the wick when a reversal pattern emerges.

Renko charts are immensely powerful in their simplicity and ease of use. Traders can work within the Renko model to determine price movements while making the right entry decision. Renko charts can, therefore, be used by entry-level traders, day-traders, and early stage market participants.

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