The Renko Price Action Strategy is a unique approach that uses Renko charts to identify and capitalise on price trends through price action. Unlike traditional candlestick charts, Renko charts focus purely on price movement and trend direction, filtering out market noise and making it easier to identify strong trends. This strategy combines the clarity of Renko charts with the power of price action trading, enabling traders to make more informed and timely decisions in trending markets.

Renko charts are particularly effective in trend-following strategies as they help eliminate small price fluctuations and focus on significant price moves. The Renko Price Action Strategy relies on trend continuation and reversal signals identified through price patterns, support and resistance, and momentum.

Why the Renko Price Action Strategy Works

• Noise Reduction: Renko charts eliminate small price fluctuations, making it easier to spot significant trends and breakouts.
• Clear Trend Identification: Renko charts highlight trend direction more clearly by filtering out minor price moves, allowing traders to identify and follow major trends with greater accuracy.
• Easy Entry and Exit: Price action signals such as breakouts, reversals, and consolidation patterns are easier to spot on Renko charts, making it easier to time entries and exits.
• No Lagging Indicators: Since Renko charts are based on price movements and not time, they do not rely on lagging indicators, providing real-time insights into price action.

What are Renko Charts?

Renko charts are a type of chart that focuses on price movement, rather than time. Each “brick” or “box” represents a fixed price movement, regardless of the time it takes for the price to reach that level. A new brick is only created when the price moves a predetermined amount (called the brick size or box size), making Renko charts particularly useful for identifying trends and breakouts.

Renko charts do not show time or volume, so they filter out market noise and focus purely on the price movement. This makes them ideal for traders who prefer to trade based on price action and trend analysis.

How the Renko Price Action Strategy Works

This strategy involves using Renko charts to identify key trend direction and price action setups, while also applying price action techniques such as support and resistance, trendlines, and candlestick patterns.

1. Identify the Trend with Renko Charts

Start by identifying the overall market trend using Renko charts. A clear trend is essential for the success of this strategy.

• Bullish Trend: A bullish trend is characterised by a series of upward-moving bricks (green or white) on the Renko chart, where each new brick is above the previous one. This indicates that price is consistently moving higher.
• Bearish Trend: A bearish trend is characterised by a series of downward-moving bricks (red or black), where each new brick is lower than the previous one. This indicates that price is consistently moving lower.
• Neutral Market: If the Renko chart is moving sideways, with small bricks forming in both directions, it suggests a period of consolidation with no clear trend.

Once the trend is identified, you can move to the next step to find entry signals.

2. Look for Price Action Patterns on Renko Charts

Renko charts provide a clear view of price action patterns and key support/resistance levels, making it easier to spot entry signals. Some useful price action patterns to look for include:

• Breakouts: When price breaks above a key resistance level or below a key support level, it signals a potential trend continuation or reversal. In a bullish trend, a breakout above resistance can signal the continuation of the uptrend. In a bearish trend, a breakdown below support can indicate the continuation of the downtrend.
• Reversals: Look for reversal patterns such as doji, pin bar, or engulfing candles at key support or resistance levels. These patterns signal potential trend reversals.
• Support and Resistance: Identify key support and resistance zones on the Renko chart. A bounce off support or resistance can provide a good entry point in the direction of the trend.
• Trendlines: Draw trendlines to confirm the trend direction. A break of a trendline can signal a trend reversal or breakout.

3. Set Entry Signals Using Price Action

Based on the trend and price action patterns, you can determine your entry points:

• For Bullish Entries:
  • Look for a bullish breakout above a key resistance level on the Renko chart, confirmed by a strong bullish price action pattern (e.g., bullish engulfing or pin bar).
  • Alternatively, enter when price bounces off support in an uptrend, confirmed by a bullish reversal pattern (e.g., bullish engulfing).
• For Bearish Entries:
  • Look for a bearish breakdown below a key support level, confirmed by a strong bearish price action pattern (e.g., bearish engulfing or shooting star).
  • Alternatively, enter when price rejects resistance in a downtrend, confirmed by a bearish reversal pattern (e.g., bearish engulfing).

4. Set Stop-Loss and Take-Profit Levels

Once you have identified your entry, set stop-loss and take-profit levels to manage your risk:

• Stop-Loss:
  • For long trades, place the stop-loss below the recent swing low or support level on the Renko chart.
  • For short trades, place the stop-loss above the recent swing high or resistance level.
• Take-Profit:
  • For long trades, set your take-profit at the next resistance level or based on a Fibonacci extension.
  • For short trades, set your take-profit at the next support level or based on a Fibonacci extension.

5. Risk Management and Trade Management

• Risk-to-Reward Ratio: Aim for a 1:2 risk-to-reward ratio or better to ensure that the potential reward justifies the risk you are taking on each trade.
• Position Sizing: Use proper position sizing to ensure that no more than 1-2% of your capital is at risk on a single trade.
• Trailing Stop: Once the trade moves in your favour, use a trailing stop to lock in profits while allowing the price to continue in the direction of the trend.
• Partial Profit-Taking: As price reaches key support/resistance levels, consider taking partial profits and moving your stop-loss to break-even.

Strategy Summary Table

Component	Details
Timeframe	Renko chart (based on fixed price movement, not time)
Indicators	Support/resistance, price action patterns (bullish/bearish)
Entry Trigger	Breakouts, reversals, and price action 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 Price Action Strategy on EUR/USD

1. Step 1: Identify the Trend with Renko Charts:
   • EUR/USD is in a bullish trend, with upward-moving Renko bricks and price trading above the 50-period moving average.
2. Step 2: Confirm the Entry Signal:
   • Price pulls back to 1.1800, a key support level. A bullish engulfing candle forms at this level, confirming a potential reversal.
3. Step 3: Set the Entry:
   • Enter a long position at 1.1810, with a stop-loss at 1.1760 (below the swing low) and take-profit at 1.1900 (next resistance level).
4. Step 4: Exit the Trade:
   • The price moves up to 1.1900, hitting the resistance level, and the trader exits with a 2.5R profit.

Conclusion: Capture Trends with the Renko Price Action Strategy

The Renko Price Action Strategy is an effective method for trend-following traders who want to filter out market noise and focus on the clear price trends. By combining Renko charts with price action patterns, traders can identify high-probability entries and exits, manage risk effectively, and maximise profits.

To learn more about how to implement the Renko Price Action Strategy in your trading, enrol in our Trading Courses at Traders MBA and improve your ability to capture strong trends in the market.