When you are choosing a trading method often a simple but important choice is the very type of chart. This can range from time based, tick, range, and Renko to name the most popular. In this video, and article we will focus on the Renko Chart trading vs Range chart trading. Both of these use solid bars therefore look similar. The way they present the data that you get is entirely different.
How Renko Charts are formed
Each Renko Chart Trading bar is formed when the price exceeds the high or the low of the previous bar by a set amount. So each Renko bar therefore has a possible high or low that is DOUBLE what each bar is set to. See the example below.
Renko Chart Trading Pitfalls
Renko Charts display the data that you receive in a very clean way than most charts. They, unlike most chart types, don’t actually show you where all of the trades happened. What this does is clean up the way the charts look, so they are easier to analyze after the fact, but as traders, we don’t trade after the fact. We are trading on the hard right edge where each bit of information is key to us. While the cleaner charts may look quit good, they do not let us know key levels in the market that were reached.
One of the most important levels that is missed is the highs and lows with Renko Chart Trading. When a Market makes a new high or low, that price level is extremely important. That is the level where buyers and sellers came to agreement on price being too high or too low. Therefore the fact that Renko Chart Trading doesn’t display this can be detrimental to your trading. In this way they actually provide you less information on each bar.
Bruce Banks