Renko chart - profitable alternative to candlestick analysis
- VFX Blog
- For beginners
Invented in Japan, candlestick charts have become the de facto standard for displaying price movement on all popular trading platforms. For 200 years now, their patterns have been bringing stable profits despite High Frequency Trading (HFT) and other technical innovations. But they also have decent alternatives to how signals work for binary option, such as Renko price bars.
Even though the timeline of graphs is present in all terminals, in reality, it makes practical sense only for fundamental analysis. All news free binary options signals and strategies, unlike Renko, are tied exclusively to time, without analyzing how price behaved before or after the release of the fundamental event.
Periods of increased activity at open/close and overlap of trading sessions, when options trading signals show numerous sharp price impulses and indicators start giving mostly false signals, also last for a limited time and can also be classified as fundamental.
With technical and graphical analysis, the situation is reversed - the market is entered according to price data. It doesn't matter how long it took to form a pattern, cross the moving average, enter the oscillator into overbought/oversold zones, or the appearance of new auto binary signals. In this case, the time factor can be completely ignored on a "synthetic" chart such as point and figure or Renko.
The principle of building bars
In Japanese, Renko means "the quiet path" and the chart element is called "brick". A new "brick" or options trading signals appear on charts only if price movement has exceeded set values. Two parameters are used:
- Bar size or threshold. The number of points that price must pass for the appearance of a new "brick".
- Calculation price. The default is Close. On lower timeframes, High/Low can be used. In an ascending bar, if the difference between the previous high and the current price is equal to or greater than the threshold, for a descending bar we calculate the difference to low.
All bars have the same size, if the price has passed the value above the threshold, live trading signals appear. On a strong trend, several bars may appear at once. Recall that time is not taken into account; therefore, the longer price does not move or moves in a narrow sideways range, the greater delay from candlestick charts.
New Renko bars are displayed at an angle of +45 degrees for ascending and -45 for descending. After they appear on the chart, they are not deleted or redrawn.
As you can see, the process of market analysis is simplified. For example, on one-minute Forex charts, a trading day consists of 1440 candles, at the same time, according to the Renko method with a threshold of 10 points; we get an average of 20-40 bars. You can option trading signals similar to Moving Average with long periods - a change in direction will signal the beginning of a new medium-term trend.
On timeframes older than M30, removing “noise” using Renko also has a negative effect - you can skip good entry points for pullback and countertrend trades. Also, charts will not work correctly if tick volume indicators are used.
Thus, the main task of a trader is to choose the right value of bar value, especially if it binary options free. The starting point for the charts will be to calculate average volatility over the last 15-20 days of asset's movement. Next, you need to decide on the strategy used - for scalping and intraday ones, you should focus on 5-15 points, and for medium and long-term ones, you can increase it to 20-40 points. For each asset, the values should be selected separately, depending on its characteristics and trading time.
Example of trading strategy
We will trade intraday for cryptocurrency without using candlestick charts. In addition to the Renko, you need to set the MACD oscillator (standard parameters) and complex oscillator "Stochastic RSI" with a period of 28.
We look at first trading binary signals of a new trend on the MACD, do not look for possible divergences - they practically do not occur on synthetic charts, even if there are divergences, in most cases, they are worked out incorrectly.
The central element of the binary options strategy is Stochastic RSI, which determines the moment when price begins to return to its "central" value. This will be the entry signal – as soon as the exit from overbought/oversold begins, we open the option according to trend. Additional smoothing of random fluctuations is done according to MACD.
The expiration period (option validity) is calculated depending on the asset or a standard way behind the last local max/min, which are visible on Renko. When a reverse signal appears on the binary option live stream, experienced traders can try to open an additional deal on a new signal if the correction continues.
Once again, we note that the technique, which also works well for day trading crypto, was developed to simplify the visual analysis of the market. An example of a strategy that works well with technical instruments is a special case rather than a rule. The price must show periodic stable trends that are weakly dependent on bar size; otherwise, most signals from oscillators will be false.
Of course, there will be unprofitable trades, but when using such a chart, their reasons will be more objective, and not just a loss-making entry, when the indicators only give out "noise" or rapid price fluctuations after the release of fundamental news, which is typical for commodity assets.
Renko chart of market analysis
On the chart of any asset, you can observe situations when market makers make speculative impulses, knocking down expirations and Stop Loss of small players, and then go in the same direction. On Renko, such situations are not visible and do not distract the trader.
Therefore, it is better to accompany options trading signals using key points: fractals, moving average crossovers, overbought/oversold indicators, and support/resistance levels. But even here, too volatile charts become a problem: the fractal may be false; the RSI may "stick" in the extreme zones, when the price has long turned around, and so on. Using Renko solves this problem and allows you to accurately determine the exit and break-even points.
Although most instruments start to perform worse, the trending Ichimoku Kinko Hyo could very well be used as Bitcoin signals to determine the open-close point of an option.
On timeframes from H1 and higher, where Renko bars can be 20-50 points in size, in case of a strong trend, you can search for a deal using only charts, without additional indicators. You can enter the market through the binary trading platform when the bars are the same and when an element of the opposite color appears, ahead of time, if the broker allows you to close the option.
If you use only the chart and binary option live stream for analysis at less than H1, you can get a lot of false entry points. Large bars will miss the moment of the actual end of the trend, and small ones within 1-5 points will not filter the “noise”. Therefore, be sure to use additional indicators within the day!
Use on binary options
Like any other method of market analysis, Renko has features that must be taken into account when using such non-standard charts.
Renko advantages…
- All charts for Close prices without taking into account time are visually more informative – symmetrical candlesticks allow you to see the "real" trend and strong support/resistance levels;
- There is almost no market “noise”, you can more correctly determine the local highs/lows and trend reversal points;
- Changing the color of the chart will be the first signal to open an option. Their appearance can be used to confirm other indicators, especially lagging Moving Average;
- Trend indicators, overbought/oversold oscillators, and exact binary options strategy on Renko better filter false signals, especially on the M15-H1 timeframes.
- The absence of long “shadows” and clusters of «Doji» candles at key Renko levels makes it possible to more quickly identify reversal candlestick patterns.
Problems…
Despite the obvious advantages of this type of chart, several problems make it difficult to interpret them correctly:
- Volatility is removed along with noise. It takes time to form a new bar - from minutes to hours. It appears on the chart only after the candle closes; causing concern for newbie’s traders using binary options software free. The Renko chart is calculated especially for a long time during periods of consolidation when the price moves in a smaller corridor than the bar calculation period.
When there is a flat, there may be impulses and bounces from the boundaries of the range, which can be traded using scalping strategies. On a candlestick chart, such situations are immediately visible; use them as an addition to Renko.
Volatility may increase at the intersections of the Moving Average and strong price levels. At the same time, several colored bars appear on Renko in a row, and the binary signals become false.
- When opposite bars appear on a strong trend, the difference between the extreme values in points can be 3-4 times greater than the standard value set in the indicator settings. In such areas, a trader using only Renko can get a loss on expiration if the price starts a pullback or reversal. Always use additional indicators to control binary options free signals!
- The opposite situation - a large area of bars is formed in one direction, for the beginning and development of a trend this is normal, you can try to open additional deals. But when the movie comes to an end, Renko signals become too outpacing and the opposite trade counting on a reversal is usually a loss. Wait for multidirectional areas to appear and watch the confirming indicators!
Summarize. Despite the problems, the Renko chart continues to be one of the most effective tools for why signals for binary options should be used to identify trends, reversals and strong price levels on any financial asset. At the same time, the best results were obtained on intraday trading and transactions lasting at least 2-3 hours.