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Elite Renko Trading Strategy (How To Trade Renko Charts Successfully) - YouTube
Channel: The Secret Mindset
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Renko charts are one of the most valuable
and underrated instruments, which offer a
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great value to patient traders.
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Although Renko trading is not as popular and
not as well-known as normal candlestick or
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bar charts, you’ll be surprised about how
profitable it can be if used correctly.
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In this video, i’ll explain you the concept
of Renko trading, I’ll show you the advantages
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of using this type of chart and you’ll also
discover a simple Renko strategy to trade
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the stock market.
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Before we continue, if you’re new to our
channel, make sure you subscribe, hit the
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notification bell and leave a like to show
your support.
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So, what is a Renko chart.
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A Renko chart is a graphical display that
only involves the price movement, because
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the time and volume are not included.
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The construction of a Renko chart is simple:
a brick (or better said, the “body” of
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a Renko bar) is formed in the next column
once the price exceeds the top or bottom of
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the previous brick by a predefined amount,
in this case i use a 100 brick, but you could
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use any brick size you want, 10, 20, it all
depends on your trading style.
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The difference between common charts and Renko
is noticeable.
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The conventional charts like candlestick charts
or bar charts are plotting a new candlestick,
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bar based on time.
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The uniqueness of Renko charts is that this
technique plots a brick only when the price
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moves a certain amount of pips /ticks in one
direction or the other.
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Now you might wonder, how is this better than
a classic candlestick chart.
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Here are the main advantages of Renko trading.
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First, Renko charts are very effective for
traders to identify key support/resistance
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levels
In this chart, we notice how simple it is
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to plot the support and resistance levels.
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And most interestingly, notice how price reacts
to these support/resistance levels from the
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left side of the chart.
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By using Renko chart for support and resistance,
we can see price action being more responsive.
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Second, Renko charts offer a simpler look
of the market and indicate trends in a more
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clean way
Here we have the evolution of the price during
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the past 7 months.
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Look how OBVious is for you to identify the
trends.
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Since December to January, we have 2 months
of downward price action, and after that we
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have a clear uptrend, with the price making
higher highs and higher lows.
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Another important advantage is the fact that
it removes the “market noise” seen on
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typical candlestick charts or bar charts,
including wicks, false breakouts and price
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volatility.
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In addition, Renko charts are suitable for
scalping and short-term trading.
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So, if you want to scalp the market, I would
say it’s better to use a Renko chart than
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trading on the 1-min timeframe.
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Also, it allow traders to catch larger moves
by filtering out minor price fluctuations
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One of the most important advantages of Renko
charts is a better determination of stop losses
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and take profit targets.
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With Renko charts, is very easy to place your
orders, based on the previous bricks.
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You just have to time your entry and make
sure your orders are placed accordingly.
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Also, what I’ve noticed over the years,
is the fact that Renko trading minimize overtrading
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and increase patience, which will make a better
trader overall
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Now enough with the theory and let’s dive
right into a simple Renko strategy.
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For this strategy, I use a 100 Renko brick.
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How is a 100 Renko brick formed?
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A new green Renko bar forms only after the
current price exceeds the top of the previous
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Renko bar by 100 points.
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The closing price of a green Renko bar is
also the high for the green Renko bar.
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A new red Renko bar forms only after the current
price surpasses the bottom of the previous
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Renko bar by 100 pips
The closing price of a red Renko bar is also
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the low for the red Renko bar.
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Besides the 100 brick I also prefer to add
a 10 moving average in order to determine
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the trend and the OBV.
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So Renko bars are based only on price, but
I don’t want to neglect the volume.
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The on balance volume (OBV), is a momentum
indicator that relates volume to price change
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and shows if market’s volume is flowing
into or out of a stock.
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In other words, the OBV offers information
regarding the strength of price movements.
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OBV increases or decreases during each day
in correlation on whether the price closes
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higher or lower compared to the close during
the previous period.
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The main assumption is that on balance volume
movements precede price changes.
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As the volume is the main fuel behind the
market, OBV is designed to anticipate when
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major moves in the markets would occur.
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For this reason, the OBV will play an important
part in the strategy.
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Here are the main rules of this strategy:
We use the 100 Renko brick to identify key
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support/resistance levels, to determine the
market trends and to place our stop-loss and
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take-profit targets
We use 10 simple moving average to determine
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the short-term trend
We confirm our bias with the on balance volume
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(OBV) to determine if market’s volume is
flowing into or out of the traded instrument
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Here is the setup for a long signal:
1.
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A new green Renko bar forms above the SMA10
2.
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We only take trades in the direction of the
SMA.
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When the Renko bars are traded above SMA10,
we look for long entries
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3.
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We filter the signal with the on balance volume.
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We look for a new high in the OBV, which indicates
that buyers are stronger than sellers, and
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the price is likely to increase.
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When OBV increases in correlation with the
price, the upward trend is confirmed.
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4.
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Stop loss will be placed 2 Renko bars below
the entry point.
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5.
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We can exit the position manually if the price
falls below the simple moving average.
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6.
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Minimum take profit should be 3 Renko bars
into the future, to cover the spread and commissions.
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When the price reach this target, we can move
our stop loss to break even and let the trade
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ride, or we can use a trailing stop to capture
a larger part of the move.
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In this example, we have 4 valid buy entries,
all of them bringing decent returns.
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And here we have another chart during which
we had 5 signals.
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Remember to always look at the OBV to confirm
the entry.
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Also, here’s another tip to reduce your
losses.
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Take a closer look at the slope of the 10
SMA.
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For better quality signals, try to enter the
market when the ma is pointing upward.
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In our case, the first 2 signals appeared
when the 10 SMA was flat, so a conservative
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trader would have ignored these entries and
focused on the last ones, when the slope was
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clearly pointing upward.
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And here is the setup for a short signal:
1.
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A new red Renko bar forms below the SMA10
2.
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We only take trades in the direction of the
SMA.
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When the Renko bars are traded below SMA10,
we look for short entries only
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3.
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We filter the signal with the on balance volume.
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We look for a new low in the OBV, which indicates
that sellers are stronger than buyers, and
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the price is likely to decrease.
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When OBV decreases in correlation with the
price, the downward trend is confirmed.
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4.
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Stop loss will be placed 2 Renko bars above
the entry point.
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5.
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We can exit the position manually if the price
increases above the simple moving average.
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6.
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Minimum take profit should be 3 Renko bars
into the future.
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As in the case of a buy signal, when the price
reaches this target, we can move our stop
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loss to break even and let the trade ride,
or we can use a trailing stop to capture a
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larger part of the move.
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On our example, we had 4 signals.
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First one was a losing trade, but we could
easily avoided if we looked at the slope of
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the SMA, which was flat.
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The next 3 signals were successful, as the
price and OBV went head to head, the price
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making lower lows and lower highs.
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And in this example we have 3 entries.
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The first entry here, with some risk because
the SMA slope was pointing upward, the second
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one here, with the perfect setup, from the
SMA and OBV, and the third one here, also
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riskier because the SMA was flat.
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The price consolidated for a few days below
the SMA, before it finally continued its downward
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direction.
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So, for you to record better results, pay
attention to the slope of the 10 SMA and try
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to enter when you see the slope in correlation
with the market trend.
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Also, pay attention to the recent market swings,
try to enter long during long term upward
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trends and go short during long-term downtrends.
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Now, if you found value and enjoyed this type
of content make sure you subscribe, hit the
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notification bell and leave a like to show
your support.
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Until next time.
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