Author: Nikolay Kositsin
Forum on trading, automated trading systems and testing trading strategies
newdigital, 2013.09.03 11:03
Renko (extraction from Achelis - Technical Analysis from A to Z)
The Renko charting method is thought to have acquired its name from "renga"
which is the Japanese word for bricks. Renko charts are similar to Three Line Break charts except that in a Renko chart,
a line (or "brick" as they're called) is drawn in the direction of the prior
move only if prices move by a minimum amount (i.e., the box size). The bricks
are always equal in size. For example, in a 5-unit Renko chart, a 20-point rally
is displayed as four, 5-unit tall Renko bricks.
Kagi charts were first
brought to the United States by Steven Nison when he published the book, Beyond Candlesticks.
Basic trend reversals are signaled with the emergence of a new white or black
brick. A new white brick indicates the beginning of a new up-trend. A new black
brick indicates the beginning of a new down-trend. Since the Renko chart is a
trend following technique, there are times when Renko charts produce whipsaws,
giving signals near the end of short-lived trends. However, the expectation with
a trend following technique is that it allows you to ride the major portion of
Since a Renko chart isolates the underlying price trend by filtering out the
minor price changes, Renko charts can also be very helpful when determining
support and resistance levels.
Renko charts are always based on closing prices. You specify a "box size"
which determines the minimum price change to display.
To draw Renko bricks, today's close is compared with the high and low of the
previous brick (white or black):
If the closing price rises above the top of the previous brick by at least
the box size, one or more white bricks are drawn in new columns. The height of
the bricks is always equal to the box size.
If the closing price falls below the bottom of the previous brick by at least
the box size, one or more black bricks are drawn in new columns. Again, the
height of the bricks is always equal to the box size.
If prices move more than the box size, but not enough to create two bricks,
only one brick is drawn. For example, in a two-unit Renko chart, if the prices
move from 100 to 103, only one white brick is drawn from 100 to 102. The rest of
the move, from 102 to 103, is not shown on the Renko chart.
newdigital, 2013.10.16 08:04
How to Use Renko Bricks and Moving Averages to Find Trades
To add a 13-period exponential moving average to the Renko chart, choose
EMA from the Add Indicator menu then change “Number of periods” to 13.
Notice the chart above which displays both Renko bars and a 13-period
exponential moving average. A simple system can be built around the
Renko bars and the moving average. When Renko price bars cross below the
moving average and turns red, traders can enter short and stay with the
trend until the Renko bars cross back above the moving average.
An initial stop could be placed just above the last blue Renko brick.
Keep in mind that in the above example, each brick is equal to five
pips. In the above example, the red circles mark where the Renko bars
crossed below the moving average. A trader can see that a number of pips
could have been gathered as the bars stayed below the moving average.
On the other hand, when the Renko bars change color and cross above the
moving average, traders can enter long placing stop just below the last
red Renko brick. The above chart shows in the green circles, points were
the Renko price bars moved above the moving average generating a clear
Renko charts, without the dimension of time, may take a little getting a
little used to. But once you get the hang of them, you may find it
difficult to go back to the candles. Adding a moving average gives
excellent signals for entry and exit. Marrying them up with other
indicators can magnify the benefits of trading without noise and scary
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