The Renko Support and Resistance Strategy is a trend-following method that uses Renko charts to identify support and resistance levels. By focusing purely on price movement, Renko charts help traders easily identify major trends and price levels, making it easier to trade at key support and resistance zones. This strategy works well for traders who rely on price action and trend-following techniques to enter and exit the market.

Why the Renko Support and Resistance Strategy Works

• Noise Reduction: Renko charts filter out market noise by focusing on price movement, providing a clearer picture of support and resistance levels.
• Trend Clarity: Since Renko charts remove minor price fluctuations, they help traders identify clear trends and significant price levels more easily.
• Price Action Focused: The strategy relies on price action at key levels, making it ideal for traders who prefer to trade without relying on lagging indicators.
• Effective for Breakouts and Bounces: This strategy excels in identifying both breakout opportunities and price reversals at support and resistance levels.

What are Renko Charts?

Renko charts are a type of price chart that only focuses on significant price movements, regardless of time. Each Renko brick represents a fixed price movement (called the box size), and a new brick is only created when the price moves a specified amount. This design removes the effects of time and market noise, making Renko charts highly effective for identifying trends and key price levels such as support and resistance.

Renko charts are ideal for traders who prefer to trade with price action and focus on key support and resistance levels without being distracted by smaller price fluctuations.

How the Renko Support and Resistance Strategy Works

This strategy uses Renko charts to identify key support and resistance levels where price is likely to reverse or break out. Once these levels are identified, traders can take advantage of price movements by entering trades when price either bounces off support or breaks through resistance.

1. Identify Support and Resistance on the Renko Chart

The first step is to identify support and resistance levels on the Renko chart. Renko charts make it easier to spot these levels by filtering out market noise and focusing on significant price movements. Support and resistance levels are areas where price has historically struggled to move beyond or below.

• Support: A support level is a price point where a downtrend slows or reverses, as demand for the asset increases. On a Renko chart, support is identified by areas where price consistently forms higher lows.
• Resistance: A resistance level is a price point where an uptrend slows or reverses, as selling pressure increases. On a Renko chart, resistance is identified by areas where price consistently forms lower highs.

Once you’ve identified key support and resistance levels, you can use them to determine potential entry and exit points.

2. Look for Price Action at Key Levels

After identifying support and resistance, look for price action to confirm entry signals:

• For a Bullish Breakout:
  • Price breaks through a resistance level, with a strong upward move on the Renko chart.
  • Enter the trade when price confirms the breakout above the resistance level and the Renko bricks continue forming upward.
  • Confirm the breakout with price action patterns, such as a bullish engulfing or a bullish pin bar.
• For a Bearish Breakout:
  • Price breaks below a support level, with a strong downward move on the Renko chart.
  • Enter the trade when price confirms the breakdown below the support level and the Renko bricks continue forming downward.
  • Confirm the breakdown with price action patterns, such as a bearish engulfing or a shooting star.
• For a Reversal at Support:
  • If the price is in a bullish trend and approaches a support level, wait for a bullish reversal pattern (e.g., bullish engulfing or hammer) to form at the support level.
  • Enter the trade when the reversal pattern confirms a bounce off support.
• For a Reversal at Resistance:
  • If the price is in a bearish trend and approaches a resistance level, wait for a bearish reversal pattern (e.g., bearish engulfing or shooting star) to form at the resistance level.
  • Enter the trade when the reversal pattern confirms a bounce off resistance.

3. Set Entry, Stop-Loss, and Take-Profit Levels

Once the entry signal is confirmed, set stop-loss and take-profit levels based on the Renko chart:

• Stop-Loss:
  • For long trades (bullish breakout or reversal), place the stop-loss below the support level or below the most recent swing low.
  • For short trades (bearish breakout or reversal), place the stop-loss above the resistance level or above the most recent swing high.
• Take-Profit:
  • For long trades, set the take-profit at the next resistance level or use Fibonacci extensions to project potential price targets.
  • For short trades, set the take-profit at the next support level or use Fibonacci extensions for downside targets.

4. Risk Management and Trade Management

• Risk-to-Reward Ratio: Aim for a 1:2 risk-to-reward ratio or better, ensuring that your 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 total capital is at risk on any given 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: Consider taking partial profits at key support or resistance levels or when price shows signs of reversal.

Strategy Summary Table

Component	Details
Timeframe	Renko chart (based on price movement, not time)
Indicators	Price action patterns (bullish/bearish) and support/resistance
Entry Trigger	Breakouts and reversals at key support/resistance levels
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 trending markets

Example: Bullish Renko Support and Resistance Strategy on EUR/USD

1. Step 1: Identify Support and Resistance with Renko Charts:
   • EUR/USD is in a bullish trend, with upward-moving Renko bricks. Identify 1.1800 as a resistance level and 1.1750 as support.
2. Step 2: Confirm Breakout:
   • Price breaks above 1.1800, with a strong upward move on the Renko chart.
   • Enter a long position at 1.1810 when the price breaks above 1.1800 and Renko bricks confirm the trend continuation.
3. Step 3: Set Stop-Loss and Take-Profit:
   • Stop-loss is placed at 1.1750 (below the support level).
   • Take-profit is set 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 3R profit.

Conclusion: Capture Price Movements with the Renko Support and Resistance Strategy

The Renko Support and Resistance Strategy is an excellent tool for trend-following traders who want to capture significant price movements based on key support and resistance levels. By combining Renko charts with price action analysis, traders can identify high-probability trades that are aligned with the overall market trend.

To learn more about how to implement the Renko Support and Resistance Strategy in your trading, enrol in our Trading Courses at Traders MBA and refine your trading skills for greater success.