Below there will be a graphical display in the form of green and red bricks and the same chart in the form of a classic price line for comparison. Two years ago, I did an interesting experiment comparing Japanese candlestick charts with Renko charts. The Big Experiment Part 1 ". Here I will only give you my brief conclusions.
I have already mentioned the most important differences above. Two, the bricks are not tied to the time axis. This makes it difficult for novice traders to compare both types of charts. Three, it should be borne in mind that indicators work differently for the candlestick chart and Renko. Let's look at an example using the MACD.
Renko Charts and Stocks
In the daily chart, I took approximately the same period from the end of to the current moment. Pay attention to how many crossings of lines and transitions from the positive to the negative zone there are when using Japanese candlesticks. The scale of the chart speaks volumes too. Now look at Renko.
Despite the fact that the chart was based on the same timeframe, the number of MACD signals is much smaller, and their quality is higher. Four, there is a strong delay. Renko is a lagging indicator.
Use Renko Charts to Capture Big Forex Price Moves - TradeThatSwing
The MACD is based on moving averages and is also lagging. Thus, the indicator signal in the Renko chart will lag significantly compared to the candlestick chart. Manual selection of the optimal size of bricks and timeframes can help the situation slightly. This can only be done experimentally, but the gap with the candlestick chart will still remain.
Five, bricks are not suitable for analyzing trading volumes, unlike a candlestick chart. This means that you shouldn't even try to use any strategies related to volumes. Six, the interface difference. The bricks are always the same size and have no shadows. This means that candlestick patterns, which occupy an important place in technical analysis, are not applicable to them.
Of course, no one prevents you from looking at both types of charts at the same time, using candlestick patterns as the primary sign of a reversal and bricks as additional confirmation of your forecasts. Unfortunately, Renko charts are not included in the standard MetaTrader toolkit. So to use the bricks, you will need to install additional indicators. I recommend downloading them from the community website www. I'll tell you about the most interesting tools for building Renko charts in MT4.
This is a simple indicator that displays bricks without any additions. This makes it compatible with most custom indicators and advisors. A handy tool from the developers of Renko Live Chart, which identifies graphic patterns in the chart and displays them as colored lines. The features include notifications about reversals. The link to download the KT Renko Patterns indicator is here. This tool places semi-transparent bricks on a candlestick chart.
Each brick is displayed as a colored area through which traditional Japanese candlesticks can be seen.
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Thanks to this, it is easy for a trader to compare the Renko chart with the Japanese candlesticks. Another indicator that draws bricks in the form of translucent areas. But unlike the previous tool, it provides each brick with a semitransparent shadow, which helps to see which bars correspond to which brick. The link to download the Renko Shade indicator is here. This indicator generates bricks on the candlestick chart as colored lines. During an upward movement, a brick consisting of blue lines is formed, and during a downward movement - red ones.
Another interesting feature of AG Renko is the indicators in the form of blue and red arrows that appear when a signal to enter the market occurs. Link to download the AG Renko indicator here. After restarting MetaTrader, the tool will appear in the list of indicators. To add AG Renko to the chart in the main menu, which is located in the program header, open the "Insert" tab. You can then click on the "OK" button to display the indicator with the default settings or specify your own parameters in the same window. In the second case, the "Input parameters" tab is of the greatest interest.
Here you can specify the size of the bricks and the features of the signal display. In the chart, the indicator looks as shown above.
Renko Strategies
The bricks are displayed as lines. The blue lines are for an upward movement, and the red ones for a downward movement. Bricks can be easily combined with many classic indicators and methods of representing price movement. Below I will tell you about the most popular combinations. Heikin Ashi is a trend representation of price movement that, like Renko, smooths out volatility. Bars are plotted by averaging four parameters: open bar open , close bar close , max and min maximum and minimum price values. You can read more about Heiken Ashi and its trading methods in my article here.
The combined use of Heikin Ashi and Renko allows you to take advantage of both views and neutralize their disadvantages. The Renko chart gives more accurate signals but with a greater lag. To minimize the negative effect, you need to choose the brick size and monitor the chart on a lower timeframe than Heikin Ashi.
It is convenient to use the confirmation signals of the Heikin Ashi indicator to enter and exit the market. In the daily chart above, you can see how, after the triple bottom pattern formed, there was a breakdown of the resistance level at USD around June 30, First, we wait for the signal of the breakout of the support level in the Renko chart.
Above is an example of a possible Triple Top reversal pattern in the daily Gold chart. If such a signal is confirmed by a signal in the weekly Heikin Ashi chart, the long position should be closed. For Renko, the same indicator signals work as for candlestick charts.
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Those include:. The MACD indicator shows the crossover of moving averages from the bottom up. This is a sign of the beginning of a bullish trend.
So we should open a long position blue line after the appearance of the signal. The transition of the MACD chart from the positive to the negative is a sign of a downward reversal, and the change from the negative to the positive, as in the chart above, is a signal for an upward reversal. After the first positive bar of the histogram appears, enter the market to buy blue line.
Divergences and convergences connecting the extreme points of the chart and the moving average of the indicator are powerful reversal signals. A more accurate one than the previous two.