CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.00% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
A Renko trading chart is similar to a candlestick chart, although it comprises “bricks” rather than candlesticks, to visually depict asset price moves. It can be more effective than candlestick charts because it filters out the “noise” of constant, small price moves to help you identify price trends and their momentum better. With this simplified view, the Renko technical analysis tool eliminates the time factor to help you recognise broader market patterns.
Renko trading charts are made up of red and green bricks. The bricks are usually at a 45-degree angle, up or down, to the previous one. Unlike candlesticks, no two bricks will appear at the same level as the previous one. The best part is that you can customise the brick size, which will determine when the next brick forms.
For example, let’s say you are trading the EUR/USD and decide that each brick will represent 10 pips of price movement. This means the price will need to move 10 pips above or below the previous price for a new brick to form. However, since bricks cannot form next to each other, the next brick will form only when the price moves 20 pips, up or down, from the previous closing price.
To use Renko charts effectively, you need to understand its basic principles.
You can adjust the box size based on the price volatility of your chosen asset. A smaller box size captures smaller price movements, while a larger box size filters out minor moves to focus on significant price changes. You can also customise the brick type, such as using filled or hollow bricks, whichever you prefer.
Every technical analysis tool and price chart comes with its own benefits and limitations, and Renko Charts are no different.
One of the most common strategies to trade Renko charts involves trading in the direction of the prevailing price trend. Traders tend to make the trading decision to enter long positions when a series of bullish bricks form, signalling an upward trend, while short positions are taken when bearish bricks are formed.
Breakout traders can use Renko charts to identify key support and resistance levels. Breakouts above the resistance or below the support levels can signal potential trading opportunities. The idea here is to use the Renko chart to open positions early in a new trend while placing the stop-loss at the point of break out.
Since breakouts are easy to identify with Renko charts, this technical analysis tool is popular for range trading. A ranging market will move between the support and resistance levels, with the Renko bricks alternating within that price range for some time. Range traders buy when the price is near the support level and sell when the price closes in on the resistance level.
Renko charts can be combined with other indicators, such as moving averages, oscillators and trendlines, to confirm trading signals. Here are some other factors to consider while using these trading charts.
As they say, “Practice makes perfect.” Use a demo account to familiarise yourself with Renko charts. Experiment with different box sizes and brick types to understand how they influence chart patterns and trading signals.
Experienced traders make proper risk management is an indispensable part of their trading strategies. So, don’t forget to set your stop-loss and take profit orders, while adhering to position-sizing principles, to protect your capital.
Renko charts may perform differently under different market conditions. Adapt your trading strategy and trading decision accordingly to accommodate changing volatility and trends.
This is what separates great traders from the good ones. Attend seminars, read books, and engage with online communities to expand your knowledge and skills.
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