Price action trading can be a lot more objective and easier when trading with Renko chart. In this article, read how Renko charting can help you see the obvious chart patterns at a more objective level, helping you to trade price action more effectively.
Price action trading can often be intimidating for most traders. After all, the classic technical analysis methods such as trend lines, support and resistance levels, and chart patterns can all be subjective and depends on how well your eye is trained. While some support/resistance levels are obvious, most aren’t and it usually takes years of experience and ample chart time to spot the main support/resistance levels or trend lines that really matter.
With the traditional chart types, the Candlestick or OHLC Bar chart or line chart, there is often scope for noise especially when markets range. It is during times like this that unless you are really confident of your price action methods, you are bound to get stopped out or at the very least, the markets could test the confidence you have in your analysis.
Why Renko charts for price action?
Renko charts have been around for ages and traces its roots to the Candlestick sticks and the Heiken Ashi charts. The Japanese sure have an imagination when it comes to charting the markets and Renko (Renga being the Japanese word for Brick) is one such way to chart the markets. Easily identified by the ‘Bricks’ that are plotted, Renko charts offers traders the benefit of identifying and staying with the trend while also making it a lot more objective when it comes to trading with price action, including trend lines and support/resistance levels.
Besides the obvious, when using the right Renko charts, combined with the ‘Round numbers‘ price action trading is a lot simpler in comparison.
To illustrate this point, let’s take a look at the following GBPCAD chart set up. Here, we make use of a 100 Pip Renko Chart.
The trend line connecting the subsequent higher lows indicates prices trading in an uptrend, following a base formed at 1.76, and a range high at 1.85. Interestingly notice how the most recent price action formed a reversal right near this long established trend line?
Or take a look at the minor trend line which was broken near 2.03; price briefly rallied back to test the break out level before declining lower.
The double top pattern formed near 2.09 was of course a dead giveaway that GBPCAD had formed an interim top and was poised to head lower.
The price action methods shown in the above Renko chart are in fact quite simple and easy to spot especially for traders who have a bit of experience in drawing the trend lines.
Trading with Renko Charts – For price action traders
The above example is merely one of the many ways traders can apply Renko charts to their trading, building trading strategies that include indicators alongside price action as well. While Renko charts are definitely not the Holy Grail of trading, it does help traders by keeping the noise or distraction at bay. Most traders tend to jump to Renko charts after they have failed at trading successfully with the regular chart types. But make no mistake, as Renko charts can also throw you off balance every now and then. Patience is perhaps one of the most important elements that will determine your success when trading with Renko charts, but when approached with the right mindset, you will in most cases see price action that unfolds, well before any of the regular charts or trading systems will alert you to.