Having spent enough time trading with the regular Candlestick charts, I have now grown to prefer trading with renko bars.
In most of my articles, we were looking at the different ways you could display the raw data of the stock price or the forex currency pair of the futures instrument. Just about everyone knows how to use candlestick charts in their trading.
Some might even look into other charts such as the range bars, or even the tick charts. In this article I will talk about my favorite charting technique, which uses the renko bars.
I have been using Renko bars for trading the E-mini S&P500 futures contracts. I typically use renko bars to scalp the markets. The small chunks of profit I make within the broader trend adds up. As a futures day trader, I limit the variables with which I trade.
Trades with longer term horizons are no longer important. In other words, I like to trade the E-mini futures contracts using Renko bar scalping. Momentum is my best friend and price action is what lets me see through the noise.
With renko bars, the noise is further cut down. They are unique because they show only price. Volume and time are removed from the equation, making it a price only chart. This can be very useful because with the other chart types, it can be easy to get lost in the noise.
Over time, I also started to dislike the candlestick bars themselves. Because way too many day traders watch these charts. Sometimes, the patterns just don’t work.
Why I prefer renko bars?
So you have heard my talk a lot about why I prefer renko bars. But now is the time to tell you why. Firstly, a bit of history.
Renko bars originate from Japan. In fact renko bars started in the futures trading world. Futures trading, as you know began with the Rice markets in Japan. The word Renko comes from the word Renga which means, a brick in Japanese.
It is a popular way to trade among day traders. But comparing to the more traditional chart types, Renko bars are not that big on popularity.
The renko bars on a price chart resemble a series of stacked bricks in a staircase fashion. When price is up, the bars stack up, inclining to the right and in an ascending fashion.
When the price is down, the bars stack down, inclining to the right in a descending fashion. As you if were taking the stairs from the 5th floor.
I have been using Renko bars for trading for a long time. Let me show you some unique characteristics of renko bars.
- You can set the size of each renko brick
- When there is no price movement, there is no movement in the renko bars
- The renko bars track trends and as a result, they filter the extraneous market noise
Many people think Renko bars are similar to range bars. But that is not true. Renko bricks generate a bar only when price moves the minimum size that you set. This is not the case with range bars. A new renko brick forms when the previous one closes.
Interestingly, the reversal renko bricks are unique. A reversal renko bar appears when price closes twice the size you set. This is a great way to see how the trends shift in the market.
Basics of trading E-mini S&P using renko bars
Let me now get into the details of trading E-mini S&P500 contracts using renko bricks. We will use a renko scalping system in this case. A good example is that of the ADX trading strategy using renko.
If you have been trading for a while, you will know that one of the most difficult things is to stay out of the market when it is flat. There is just too much noise. You only end up losing money.
With the renko brick system, the market noise is cut off. You can see clear trends and clear sideways ranges when this happens. The bricks just stack up around each other in such times.
When we exclude the consolidation phase in the market, we can then focus on the pure trends. With the renko bricks, you can easily identify the consolidating markets. Unlike candlestick charts, where it can be difficult to pinpoint such market phases.
In short, the consolidation phase that one cannot avoid when using the traditional chart types can be avoided when using renko bricks.
In my renko futures trading strategy, I use four or five tick bricks. Of course, I also experiment time and again with the tick settings. This will help me determine what renko settings works best for me. If you think why, I keep experimenting with the renko brick size all the time, think again.
The market is not constant! So am I! And so is my renko trading system.
But before I start to tinker with the renko brick settings, I wait and see how prices evolve. After all, I don’t want to end up using a renko setting that doesn’t quite help me.
Using too small a tick size can mean that my renko bricks are too sensitive. But it also gives me some scalping opportunities. Using a larger tick size for renko bricks means that I have to wait longer for the signals to emerge.
This could also increase the holding time for my renko bars strategy.
Renko bars trading summary
To conclude this monologue, I only touched upon a few of the advantages of using the renko brick trading style. There are many other aspects that you should also look into. I have so far pointed out how the renko bricks can help you.
In the E-mini S&P500 futures trading renko bricks are ideal for spotting trends and to cut off the market noise. I also briefly touched upon how to check your renko bricks all the time. This will help you to stay in tune with the market.
You can use any renko color that you like. I personally prefer the Red and Green renko bricks. They are easier on the eye. The colors also help me easily see which way the market is going. So does the direction of the way the renko bricks stack up.
I should note that trading with renko bars can be difficult. You should spend enough time practicing this before you start using it in the real markets. At the end, most futures scalping day traders will find the renko charts to be perfectly suited to the intraday market momentum.