Renko charts are a popular form of technical analysis tool used by traders to identify trends and key price movements without the distraction of time-based fluctuations. Renko charts are based on price movement, with each “brick” representing a fixed price change, offering a cleaner and more focused view of the market compared to traditional candlestick charts.

In this article, we’ll explore several powerful Renko chart strategies that traders can use to capture market trends and make informed trading decisions.

Why Renko Charts Are Effective

• Noise Reduction: Renko charts filter out minor price movements, focusing on significant price action, which helps traders spot clear trends without the interference of market noise.
• Trend Clarity: By visualizing price action in distinct blocks (bricks), Renko charts make it easy to spot trend direction and key support/resistance levels.
• Clear Entry and Exit Points: Traders can use Renko charts to define entry points at key support or resistance levels, with breakouts or reversals providing logical exit points.

Popular Renko Chart Strategies

1. Renko Trend Following Strategy

This strategy focuses on identifying and trading in the direction of the dominant market trend. It works well in strong trending markets, where price moves consistently in one direction for an extended period.

How it Works:

• Identify the Trend: The direction of the Renko bricks indicates the trend:
  • Uptrend: A series of green/white bricks forming higher highs and higher lows.
  • Downtrend: A series of red/black bricks forming lower highs and lower lows.
• Enter the Trade: Enter a trade in the direction of the trend:
  • For long trades (bullish), enter when a green brick forms in an uptrend.
  • For short trades (bearish), enter when a red brick forms in a downtrend.
• Stop-Loss: Place the stop-loss below the most recent swing low (for long trades) or above the most recent swing high (for short trades).
• Take-Profit: Set the take-profit at the next support or resistance level, or use a risk-to-reward ratio (e.g., 1:2).

Example:

• EUR/USD is in a strong uptrend, with green Renko bricks forming consecutively. A new green brick forms after a minor pullback, providing an entry point to buy, with a stop-loss below the swing low and a take-profit at the next resistance level.

2. Renko Breakout Strategy

The Renko Breakout Strategy is designed to take advantage of price breakouts above resistance or below support. This strategy works best when the market is in consolidation and price is about to make a significant move.

How it Works:

• Identify Consolidation: Look for periods of consolidation, where the price moves sideways, and Renko bricks are small or have little variation.
• Breakout Confirmation: A breakout occurs when price breaks above resistance or below support, forming a new green or red Renko brick outside the consolidation range.
• Enter the Trade:
  • For bullish breakouts, enter a long position when price breaks above resistance, confirmed by a green brick.
  • For bearish breakouts, enter a short position when price breaks below support, confirmed by a red brick.
• Stop-Loss: Place your stop-loss below the breakout point (for long trades) or above the breakout point (for short trades).
• Take-Profit: Set the take-profit at the next support or resistance level, or use a risk-to-reward ratio.

Example:

• EUR/USD has been moving sideways for several hours, forming small Renko bricks. When price breaks above 1.1800, the green brick confirms a breakout, and the trader enters a long position with a stop-loss below 1.1750.

3. Renko Reversal Strategy

The Renko Reversal Strategy focuses on identifying potential trend reversals using Renko charts and price action. This strategy is useful for trading market corrections when price shows signs of reversing after a strong trend.

How it Works:

• Identify the Trend: Identify whether the market is in an uptrend or downtrend using Renko bricks.
• Look for Reversal Signals: Look for reversal patterns such as engulfing candles, pin bars, or doji patterns formed at key support or resistance levels.
• Enter the Trade:
  • For bullish reversals, enter a long position when price bounces off a support level, confirmed by a green brick.
  • For bearish reversals, enter a short position when price hits a resistance level, confirmed by a red brick.
• Stop-Loss: Place your stop-loss below the most recent swing low (for long trades) or above the most recent swing high (for short trades).
• Take-Profit: Set the take-profit at the next support or resistance level, or use a risk-to-reward ratio.

Example:

• EUR/USD has been in a bullish trend. However, price reaches a key resistance level at 1.1900 and forms a shooting star pattern. The next red brick confirms a reversal, and the trader enters a short position with a stop-loss above 1.1950.

4. Renko RSI Divergence Strategy

The Renko RSI Divergence Strategy combines Renko charts with Relative Strength Index (RSI) to identify divergence signals that can indicate a potential trend reversal. Divergence occurs when the price is moving in one direction, but the RSI is moving in the opposite direction, signaling a weakening of momentum.

How it Works:

• Identify the Trend with Renko: Use Renko charts to spot the trend direction (up or down).
• Look for Divergence: Look for divergence between the price action on the Renko chart and the RSI:
  • Bullish Divergence: If the price makes a lower low, but the RSI forms a higher low, this indicates weakening bearish momentum and a potential reversal to the upside.
  • Bearish Divergence: If the price makes a higher high, but the RSI forms a lower high, this indicates weakening bullish momentum and a potential reversal to the downside.
• Enter the Trade:
  • For bullish divergence, enter a long position when price shows signs of reversing, confirmed by a green Renko brick.
  • For bearish divergence, enter a short position when price shows signs of reversing, confirmed by a red Renko brick.
• Stop-Loss: Place your stop-loss below the support level (for long trades) or above the resistance level (for short trades).
• Take-Profit: Set your take-profit at the next support or resistance level, or use a risk-to-reward ratio.

Example:

• EUR/USD is in a bullish trend, but the RSI shows bearish divergence as the price forms a higher high while the RSI forms a lower high. A red Renko brick confirms a potential reversal, and the trader enters a short position with a stop-loss above the previous high.

5. Renko Support and Resistance Strategy

The Renko Support and Resistance Strategy combines the simplicity of Renko charts with the power of support and resistance levels to identify key price levels where the market is likely to reverse or break out.

How it Works:

• Identify Key Support and Resistance Levels: Use Renko charts to identify significant price levels where price has reversed in the past (support and resistance).
• Wait for Price to Approach These Levels: Look for price to approach a key support or resistance level, and wait for Renko confirmation (a green brick for a breakout or red brick for a breakdown).
• Enter the Trade:
  • For breakouts, enter a long position when price breaks above resistance, confirmed by a green Renko brick.
  • For breakdowns, enter a short position when price breaks below support, confirmed by a red Renko brick.
• Stop-Loss: Place your stop-loss just below support (for long trades) or above resistance (for short trades).
• Take-Profit: Set your take-profit at the next support or resistance level, or use a risk-to-reward ratio.

Example:

• EUR/USD is approaching a key resistance level at 1.1900. The Renko chart shows a bullish breakout, confirming the trade. The trader enters a long position with a stop-loss below 1.1800 and a take-profit at 1.2000.

Conclusion: Renko Chart Strategies for Every Trader

The Renko Chart Strategies discussed above provide traders with effective tools to capture trends, breakouts, reversals, and support/resistance levels. By focusing on price action and clear trends using Renko charts, traders can make informed decisions and manage their trades more effectively.

To master these strategies and refine your trading skills, consider enrolling in our Trading Courses at Traders MBA.