I have spent time describing the different techniques of e-mini diagrams in recent articles. Specifically, we examined different methodologies for displaying gross price data. We examined the candlestick diagram, the range bar diagram, and the tick diagrams. This article will cover one of my favorite topics and the most commonly used diagramming technique. We will talk about Renko bars.
My e-mini trading style is dedicated to scaling or cultivating small parts of price movements in a broader trend. As a climber, I try to limit the parameters and variables that traders with a longer investment horizon need to consider. In short, I am interested in momentum and, more specifically, price action. Renko diagrams are unique in that they only deal with price; no volume or time is taken into account.
Renko’s lists are based on future negotiations in Japan and are believed to date back several centuries. The term “Renko” comes from the Japanese word “Renga” which means brick and has been popular among Forex traders in recent years. The Renko system looks like stacked bricks when they are forming a trend. I have been using e-mini contracts for several years to negotiate successfully. Let’s look at some special features of the Renko system.
The size of each Renko brick is determined by the e-mini shopkeeper.
If the prices are very inactive or static, there may be little movement in the Renko bricks.
Renko trading systems are used to track trends and filter out outside market noise.
Unlike district bars, Renko creates a brick when the price moves the predetermined number of blocks in a single direction.
Renko bricks can be calculated at the beginning of a new brick or at the end of a new brick.
Now, let’s look at some basic basics for using Renko systems in an e-mini scalping system. One of the most difficult jobs I have as a business educator recommends that students take up professions at a time when there is noise in the market. (Market noise is time that is being traced back and forth in the market and is not a trend.) Using the Renko system, market noise (sometimes called the consolidation period) is filtered out as markets settle. they show very little direction in price. When using Renko bars, the fixing periods appear as various Renko bricks; this is very clear with the traditional candlestick table, where the fixation periods appear as an elongated set of very well-separated candlestick bars. (candle charts are generally based on a time variable) In price actions related to the narrow range, Renko bricks will only add new bricks when the price action has moved the time in the direction specified by the trader. In short, most of the noise that prevails in time-based candle diagrams or multi-directional range diagrams is eliminated.
In trading, I usually use 4 or 5 tick Renko charts. It is not uncommon for me to experiment with these marking settings which gives me the clearest view of the actual price action that is taking place in the chart I am observing. Also, I will generally agree to complete at least two bricks in one direction before thinking of doing a trade in the direction in which the bricks are moving. Renko bars are generally accepted for identifying direction. Some systems draw hollow bricks when market action moves from top to bottom and solid bricks when market action goes down. In trading, I use the color red and green, which is unique to the candlestick, to indicate the direction of the market. Red Renko bricks indicate that the market is going down and green bricks indicate that the market is going up. I also found that the most effective way is to calculate Renko bricks at the end of the bar, compared to the beginning of the bar. That, of course, is a matter of personal preference; but I think the use of the closing price goes well with my trading system which requires me to start trades only at the closing of a bar.
In short, we have only touched on some of the advantages that the Renko system offers. We have indicated that this system is ideal for identifying trends and minimizing market noise. We also identified some specific settings that an e-mini trader can start with and stressed that adjusting Renko tick settings from time to time may make the trends clearer and more understandable. Of course, the exact brand settings with Renko bars should be set at the will of the e-mini retailer. Finally, I emphasize that in my negotiation using the scalping style, the Rinko system is perfect because I am very trendy and because Renko bars are based on price and are designed to identify trends based on price, not time or volume.
As a quick note, finding information about Renko bars can be difficult and you should use the time to practice with this system before implementing it with your live negotiation. In the end, however, I suspect that most e-mini traders will find that the Renko system is a superior methodology for implementing their scalping strategy.