Renko Momentum Trading combines the power of Renko charts and momentum indicators to capture strong price trends and exploit momentum shifts in the market. Renko charts, by their design, filter out market noise, providing a clearer view of the prevailing trend. When combined with momentum indicators such as the Relative Strength Index (RSI) or Moving Average Convergence Divergence (MACD), Renko charts become even more effective at identifying strong, high-probability trades in the direction of the trend.

This strategy focuses on trading with the trend and momentum, ensuring that traders enter positions when there is a high probability that the price will continue in its current direction.

Why Renko Momentum Trading Works

• Eliminates Market Noise: Renko charts eliminate the small fluctuations in price and focus only on significant price movements, which makes it easier to identify trends and capture bigger price moves.
• Trend and Momentum Confirmation: By combining Renko charts with momentum indicators, traders can ensure that they are trading with the momentum of the market, increasing the likelihood of a profitable trade.
• Clear Entry and Exit Points: Renko charts, combined with momentum indicators, provide clear entry and exit signals that traders can act on with confidence, improving their decision-making.
• High Probability Trades: This strategy focuses on trend continuation and momentum shifts, both of which are highly effective in trending markets.

What are Renko Charts?

Renko charts are a type of chart that only focuses on price movement. Each brick represents a fixed amount of price movement (referred to as the box size). A new brick is only formed when the price moves a specific distance, eliminating smaller fluctuations and providing a clearer picture of the market’s direction.

Renko charts are ideal for traders who prefer to focus on trend-following and price action strategies. Since they do not consider time, they filter out noise, which makes it easier to identify the major trends that are driving the market.

What is Momentum Trading?

Momentum trading is a strategy that involves identifying and trading in the direction of the prevailing market momentum. Momentum traders buy assets that are moving up and sell assets that are moving down. This strategy is based on the idea that once a price trend is established, it is likely to continue in the same direction for some time.

Momentum indicators, such as the RSI and MACD, are used to measure the strength of a price move and identify potential shifts in momentum. These indicators help traders identify whether an asset is overbought, oversold, or if there is a momentum reversal.

How Renko Momentum Trading Works

The Renko Momentum Trading strategy involves using Renko charts to identify the trend and momentum indicators to confirm the strength of the trend. Here’s how it works:

1. Identify the Trend with Renko Charts

Start by analysing the Renko chart to determine the overall market trend. Renko charts help identify trending markets and filter out noise that can lead to false signals.

• Bullish Trend: A bullish trend is identified when Renko bricks are consistently forming upward. Look for a series of green or white bricks, indicating an upward price movement.
• Bearish Trend: A bearish trend is identified when Renko bricks are consistently forming downward. Look for a series of red or black bricks, indicating downward price movement.
• Neutral/Sideways Market: If Renko bricks are forming in both directions, it indicates a neutral or sideways market, where there is no clear trend.

2. Confirm the Trend with Momentum Indicators

Once you have identified the trend on the Renko chart, use a momentum indicator such as RSI, MACD, or Stochastic Oscillator to confirm the strength of the trend. This will help ensure that the trend has momentum and is likely to continue.

• For Bullish Momentum:
  • The RSI should be above 50 and approaching 70, indicating strong bullish momentum.
  • The MACD should show a bullish crossover, where the MACD line crosses above the signal line.
  • The Stochastic Oscillator should be above 20 and moving upwards, confirming the strength of the bullish trend.
• For Bearish Momentum:
  • The RSI should be below 50 and approaching 30, indicating strong bearish momentum.
  • The MACD should show a bearish crossover, where the MACD line crosses below the signal line.
  • The Stochastic Oscillator should be below 80 and moving downwards, confirming the strength of the bearish trend.

3. Enter the Trade Based on Renko and Momentum Confirmation

Once the trend and momentum are confirmed, enter the trade based on price action and momentum signals:

• For Bullish Trades:
  • Wait for a bullish breakout on the Renko chart, where a new green/white brick forms after a period of consolidation or pullback.
  • Confirm the entry with a bullish momentum signal (e.g., RSI above 50, MACD crossover).
  • Enter when price breaks above key resistance levels, supported by the momentum indicators.
• For Bearish Trades:
  • Wait for a bearish breakdown on the Renko chart, where a new red/black brick forms after a period of consolidation or pullback.
  • Confirm the entry with a bearish momentum signal (e.g., RSI below 50, MACD crossover).
  • Enter when price breaks below key support levels, supported by the momentum indicators.

4. Set Stop-Loss and Take-Profit Levels

Proper risk management is key to a successful trading strategy. Set stop-loss and take-profit levels based on key support and resistance levels and the Renko chart:

• Stop-Loss:
  • For long trades, place your stop-loss just below the most recent swing low or support level on the Renko chart.
  • For short trades, place your stop-loss just above the most recent swing high or resistance level on the Renko chart.
• Take-Profit:
  • For long trades, set your take-profit at the next resistance level or use Fibonacci extensions to project potential price targets.
  • For short trades, set your take-profit at the next support level or use Fibonacci extensions for downside targets.

5. Risk Management and Trade Management

• Risk-to-Reward Ratio: Aim for a 1:2 risk-to-reward ratio or better, ensuring that the potential reward justifies the risk.
• Position Sizing: Ensure proper position sizing so that you do not risk more than 1-2% of your capital on any given trade.
• Trailing Stop: Use a trailing stop to lock in profits once the trade moves in your favour, allowing you to capture more gains as the trend continues.
• Partial Profit-Taking: As price approaches key support or resistance levels, consider taking partial profits and adjusting your stop-loss to break-even.

Strategy Summary Table

Component	Details
Timeframe	Renko charts (based on price movement, not time)
Indicators	Momentum indicators (RSI, MACD, Stochastic Oscillator)
Entry Trigger	Breakout/breakdown on Renko chart; momentum confirmation
Stop-Loss	Below/above recent swing low/high or key support/resistance
Take-Profit	Next support/resistance, Fibonacci extensions
Best Use Case	Forex, stocks, commodities during strong trends

Example: Bullish Renko Momentum Trading Strategy on EUR/USD

1. Step 1: Identify the Trend with Renko Charts:
   • EUR/USD is in a bullish trend, confirmed by upward-moving Renko bricks.
2. Step 2: Confirm the Trend with Momentum Indicators:
   • The RSI is above 50, confirming strong bullish momentum.
   • The MACD has crossed above the signal line, confirming the bullish trend.
3. Step 3: Enter the Trade:
   • Enter a long position when the price breaks above 1.1800, a key resistance level, with confirmation from the Renko chart and momentum indicators.
4. Step 4: Set Stop-Loss and Take-Profit:
   • Set the stop-loss at 1.1750 (below the swing low) and the take-profit at 1.1900 (next resistance level).
5. Step 5: Exit the Trade:
   • The price moves to 1.1900, and the trader exits with a 2R profit.

Conclusion: Capture Profits with the Renko Momentum Trading Strategy

The Renko Momentum Trading Strategy is a powerful tool for traders who want to trade with the trend and momentum. By combining Renko charts with momentum indicators, traders can filter out noise and focus on high-probability trades with clear entries and exits. This strategy works best in trending markets, where strong price movements are supported by momentum, leading to profitable trades.

To learn more about Renko momentum trading and improve your trading skills, enrol in our Trading Courses at Traders MBA and start mastering trend-following strategies today.