Trade with pleasure! Renko candles - building a graph "brick by brick"
Hello, friends! On our site there have already been several forex strategies for trading on Renko charts, I think it is worth considering this type of charts separately, discussing the pros and cons of this approach to trading. Also, as part of this review, we will get acquainted with an alternative indicator for plotting Renko charts, as some older utilities after updating Metatrader 4 do not work for some.
What are Renko graphs?
Renko charts (above) and ordinary candles (below)
This graphical method can be used to display trends that may not be so obvious on charts built from bars or candles.
Graphs Renko were invented by Japanese traders several hundred years ago and were called Renga, which in Japanese means "brick". How do they differ from bar or candlestick charts? First of all, they are visually attractive, which makes them easy to filter out noise and isolate trends. They display candles symmetrically and are effective for determining the main trends and levels of support and resistance. Renko charts can be effectively used to get a trend reversal signal.
Renko charts are one way of representing price changes. They display a trend in a way that bars and candles cannot display it. Renko charts are able to filter out noise and create uniformity that underlies the trend. Being useful, Renko charts also give signals about reversals and serious warnings regarding trading, and in general provide a number of advantages for trading using such charts. One of them is that the trader has the opportunity to stay in the market for a longer amount of time than using other methods of following the trend.
Benefits of Renko Charts
Compared to more traditional candlestick charts, Renko charts make decision making much easier. A typical one-minute candlestick EURUSD chart would contain 1,440 candles in one day, while a similar Renko chart (with a brick size of 10 points) would contain only 15 to 40 Renko bricks. Due to the smaller number of candles, the number of variables that must be taken into account for making trading decisions during the trading day is reduced.
Pluses of Renko charts;
- Clearer trending
- The lack of strong "noise" on the chart
- Alternative work of indicators and advisers
- Simpler trading for short-term traders
Building Renko Candles
Renko charts consist of dark (bearish) or light (bullish) "bricks" that move in the direction of the trend. As a rule, before the trend reversal, bricks of different colors begin to appear, and the movement continues for two or more bricks in the same direction. If you look at the usual candlestick charts of similar timeframes, you can see the appearance of various signals, both trend and counter-trend. However, the Renko chart will maintain the same trend direction until another, opposite brick appears.
After the Renko brick has formed, it will not change its direction until the next brick is formed. The drawback of Renko bricks is that they never appear next to one another.
They are always displayed strictly at an angle of +45 degrees or -45 degrees with respect to the previous brick. After the brick is created, its size will never change, and it will never be removed.
Candle Size Renko
The size of Renko bricks determines the accuracy of the trend display and is set depending on the volatility and long-term of your trading tactics. The smaller the size of the bricks, the greater their number will be displayed on the chart, and the more clear the price movement will be displayed. The larger the dimensions of the Renko bricks will be, the fewer candles will be on the charts and the more there will be hidden price movements. Therefore, when choosing the size of the candle should be careful.
Setting the size of a brick on a Renko chart is more an art than a science. In order to determine the optimal dimensions of the brick, it is necessary to perform various studies, but, by and large, the size of the brick is specific for each individual tool and its range of volatility.
You should experiment using different sizes of bricks in practice and find a size that matches your strategy and indicators.
From my experience, I found that intra-day Renko charts are more effective than when trading on daily charts. Therefore, I advise you to use Renko candles only if you are trading intraday.
Cons of Renko Charts
Despite the fact that Renko charts are visually attractive and display trends well, certain problems may arise when working with them:
1. Renko bricks suppress noise and / or volatility. One of the difficulties is that for the formation and display of each subsequent brick it may take 5 or 50 minutes, or several hours. Since a new brick is generated only when the candles are closed on the current chart, waiting for the next one to appear will inspire you with some concern. During the consolidation period, much more time will be required for the formation of the Renko brick. At that moment, until the next Renko brick is formed, the candlestick chart could show consolidation, an unwanted reversal, or a frequently changing direction of price movement. It should be remembered that in the area of accumulation of key moving averages or other critical price levels, there is a frequent alternation of multidirectional Renko bricks. This alternation can be pronounced when the price is near a key level of support or resistance.
2. Smaller sizes of Renko bricks will display the upcoming reversals faster, and larger sizes of bricks will delay the recording of price movements.
3. In the trend, the difference between the top of the light Renko brick and the bottom of the new, oppositely directed Renko brick is three times the size of this brick. This is because for the formation of an oppositely directed Renko brick, it is necessary that the closing price be lower than the lower part of the Renko brick. Thus, in anticipation of the appearance of the next, opposite directional Renko brick, you will need more time. As a result, you will also need to resort to other methods in order to protect your profits.
4. The number of oppositely directed Renko bricks is much smaller than unidirectional. For a trend, this is only an advantage, however, working in combination with many trend indicators, you can get too leading, and therefore false, signals for reversals.
5. Renko bricks are formed at closing prices, and the number of bricks displayed in one direction or another will be known only after closing the current candle. This can lead to a delay in the formation of the graph. Another important issue is also how many such Renko bricks will be at the close of the candle or trading session.
Install Renko Charts in MT4
By default, there are no Renko charts in the Metatrader 4 terminal. Therefore, we will need a special indicator for their creation, which you can download at the end of this post. The archive must be unpacked and then follow the instructions below.
0. Download and install Metatrader 4 terminal
1. Copy the contents of folder 1 to the folder with the installed Metatrader 4 program, agree to replace the files if the names match.
2. Copy the contents of folder 2 to the terminal data directory.
How to get there?
To get to the data directory, in the terminal, clickFile -> Open data directory
3. Restart the terminal.
4. Open the Metatrader 4 terminal, goService->Settings
Select tabAdvisers and check the boxes as in the figure below. ClickOK .
5. Open the chart of the desired currency pair with the M1 timeframe.
6. Install the indicator on it Renkobarchart by dragging and dropping onto a chart from the Navigator window
7. Go to the File menu -> Open Offline
8. We find the chart of our currency pair with the M3 timeframe (by default, you can change it in the indicator settings) and double-click on it with the mouse.
9. A chart with Renko candles for our currency pair will open.
Renko's graphs are clearly more enjoyable. They display symmetrical candles and are effective in determining the main trends and levels of support and resistance. Renko charts suppress noise and reproduce the uniformity underlying the trend; they are also effective in that they give trend reversal signals. Renko charts are based on closing prices, and their concept is similar to that used for tic-tac-toe charts.
Signals for buying and selling on Renko charts are generated when Renko bricks change color. They can also be used in conjunction with other indicators, which will help you improve your trading results.
Despite the warnings, on the Renko charts you can identify various reversal patterns, as well as see excellent levels of support and resistance. However, they are suitable mainly for intraday traders.