Trading with Renko Chart

Renko is another kind of candles. The most popular are candlestick charts, but there are many others types of charts created in Japan. There is for example Kagi, Three Line Break or Renko chart. Lets focus on Renko.
How Renko chart is build?
Chart is constructed by placing a brick once price surpasses the top or bottom of the previous brick by a predefined amount. Renko chart is time and volume independent – if there is no condition to draw another brick then chart may stay the same for days (until condition to draw another brick is created). White brick means the move is up, black the move is down. With Renko it is easier to spot trends and avoid trading when market is flat.

There is a popular opinion that Renko charts are slow, so you make trading decisions later then other traders. If you want to (and can…) catch every dip and high then this is not the tool for you. Do not forget how Renko chart is build and why you are using it. With Renko it is all about catching trends. You may be not the first one to enter a trade and not the first one to exit, but in a result you can catch quite big moves and make nice profit from them.
Let’s check bear market from 2008 – how did it look with Renko charts? Below we have monthly chart of S&P500:

 As you can see, there was a clear change in trend direction in 2003 when bull market started. In 2008 something happend and price failed to make new high – in fact two important supports were broken and we saw a very strong sell off. If you were hunting for the low of bear market, you could do this with Renko.
I hope that now you understand that well used Renko chart can be a great tool. It is not the fastest indicator out there, but still it is a good one.

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