Introduction to the Renko Chart Indicator
The Renko Chart is a charting method developed by the Japanese. It is said that the Renko Chart was coined after the Japanese word for bricks, which is “renga”. This is rightfully so because the Renko Chart plots brick-like boxes based on price movements alone.
What is the Renko Chart Indicator?
The Renko Chart Indicator is an indicator which plots a different price charting method compared to the usual time-bound chronological price chart wherein the x-axis represents time.
Renko Charts plot bars which represent a predetermined unit of price movement regardless of time.
This version of the Renko Chart Indicator plots blue bars to indicate positive price movements and red bars to indicate negative price movements.
How the Renko Chart Indicator Works?
Renko Charts plot blocks whenever price has moved in one direction by more than a predetermined unit of price. This version of the Renko Chart Indicator is preset to plot bars or blocks for every 100 pips price movement. It plots blue blocks whenever price moves in a positive direction by more than 100 pips, and red blocks whenever price moves down by more than 100 pips. Since Renko Charts are not timebound, the Renko Chart Indicator continues plotting more blocks as price continues moving in a certain direction regardless of time.
How to use the Renko Chart Indicator for MT5
This version of the Renko Chart Indicator allows traders to modify the value in pips which is required for the indicator to plot a block. This can be modified within the indicator’s settings on the “Box size (in pips)” variable.
When using the Renko Chart Indicator, traders can trade directly using the Renko Chart Indicator and can disregard the regular price chart.
Traders can trade based on momentum reversals using the Renko Chart. Traders can set a predetermined number of blocks which they would require for them to consider that the market is gaining momentum in a certain direction. For example, traders can assume a momentum reversal if the Renko Chart Indicator plots three consecutive blocks in one direction.
Buy Trade Setup
When to Enter?
Identify a market which is a bearish momentum based on the Renko chart plotting red blocks. Open a buy order as soon as the Renko Chart Indicator plots three blue boxes. Set the stop loss at the low of the first blue box.
When to Exit?
Trail the stop loss below the third from the latest blue box until stopped out in profit.
Sell Trade Setup
When to Enter?
Identify a market which is a bullish momentum based on the Renko chart plotting blue blocks. Open a sell order as soon as the Renko Chart Indicator plots three red boxes. Set the stop loss at the high of the first red box.
When to Exit?
Trail the stop loss above the third from the latest red box until stopped out in profit.
Conclusion
The Renko Chart Indicator is a useable technical indicator even as a standalone trading strategy. It works best when used in a market with strong momentum. However, it does result in losses whenever the market is ranging.
Also, different currency pairs have different price movement ranges. It is important to use the right number of pips as a unit for each Renko Chart block when trading on different currencies.
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