Traders at some point would have often thought about applying the art of price action, namely chart patterns to their trading. While trading based off chart patterns is a skill that needs years of practice, for the beginner traders who wish to advance their trading skills and move on from an indicator based approach would find Renko charts to be an ideal chart to make use of when trading chart patterns.
While this article will not go into the details of how Renko charts are constructed, it will purely focus on some chart pattern based examples and the simplistic view of Renko charts which makes it easier for a trader to take advantage of. In this first article, we will look at how to trade horizontal break outs using Renko charts. By the end of the article you will notice the relative ease Renko charts offers compared to using the more conventional charts.
Trading horizontal break out ranges
Horizontal break out ranges are nothing but the range high and low that are formed when price is undergoing consolidation. This range trading approach makes it easier for traders to anticipate further moves in price action and also enables them to take calculated risks.
The first chart below shows one such example, where we notice a perfect text book example of trading horizontal break outs.
Horizontal Break out Example using Renko Charts
In the above chart, notice how price has been ranging back and forth within the initial highs and lows being formed on the chart. This consolidation is the first indication that price action is looking for a potential break out (in either direction).
The main clue comes from the fact that price makes a higher low within the horizontal range and then continues its bullish rally.
Based on this price action, we then take a long position after we notice a first confirmed Renko bar above the range high while limiting the losses to the closest low within the range. The target is then set to the previous high (or it could also be a fixed take profit based on the number of pips being risked).
Another way the above range break out could have been traded is to buy on the retest. This second trade entry would have required a lot of patience and in real time, the retest could have happened either at the closing high of the break out bar or even back to the range high level.
Regardless, a long position taken on this retest would have offered even tighter stops and a safer entry and with good risk management and position sizing, the trade would have resulted in some very good profits.
The above example is only one of the many such instances that Renko charts can offer. Although it might seem that the above chart was cherry picked, a quick scan across any asset or currency pair with the right Renko box size can show many such examples that often come with a very clean trade set ups. Of course, the biggest obstacle to trading with Renko charts is the fact that traders need to be very patient in waiting for the right set ups to occur. This would mean having to wait for days, if not months before an entry can be triggered. But for those who do master the art of being patient, Renko charts can be one of the best ways to trade the financial markets.
About the Author
Ranga is a Renko chartist enthusiast. A full time trader, Ranga has over 5 years of experience trading purely with Renko charts. He is also an avid blogger and writes at http://renkotraders.com where he writes about; well you guessed it, trading with Renko charts.