A frequently asked question regarding Renko Charting is “do I need any additional indicators, and if so, which ones work best with Renko Charts?” The purpose of this article is to identify and examine those indicators which best complement the Renko Charts.
Renko charts are strictly price based charts, which means price must move a certain number of pips (which you determine for yourself when you load the indicator) before a new candle (bullish or bearish) will open up. Since current price action is the best indicator of future price movement, you could simply trade with nothing on your charts except Renko Candles (Boxes) and you could trade profitably in the long run.
For instance, I have conducted my own study stretching back over the last 4 years of charts for the EUR/USD, and I made a startling discovery. I found that if you set your Renko Chart Box Size to 10 (meaning each Candle/Box is 10 pips in length) you have approximately a 78% chance that price will move an additional 10 pips in the direction of the previous candle.
Rounding up, this means that when you see a 10 pip bullish candle close, there is about a 4-1 chance price will move up an additional 10 pips and close as another bullish candle.
Breaking it down into pips/profits, this means if all you ever do is open a trade in the same direction as the previous candle closed (and assuming your entry price the same as the Bid price) 4 times out of 5 you are going to see 10 pips profit. The 5th time you are going to see a drawdown of 20 pips, as price must move down the entire length of the previous candle PLUS an additional 10 pips for a new bearish candle to close.
But four times you win 10 pips (40 pips total) and one time you lose 20 pips (20 pips total) means 40 – 20 = +20 pips profit for every 5 trades you take.
And all this without a single MACD, RSI or Moving Average on your screen.
However, this form of “trading naked” is more than some traders can bear, and if for no other reason than to have a security blanket on their charts, they will add an indicator or two.
Over the years I have found a few indicators that seem to work well at helping Renko Chart traders find entries. The Heiken Ashii indicator (with an Input setting of 1,5,2,1) tends to forecast the start of some decent trends when using 10 pip candles/boxes. The Slope Direction Line (Input settings of 34,2,0) also does a very good job of highlighting the start of a new trend of 10 pip candles/boxes.
Recently my group tested out a new indicator called the BBand (with settings at 12,1 for the first two Inputs) and used with 5 pip candles/boxes. This indicator worked well not only with spotting good entries, but also tended to accurately gauge the end of some of the longer price runs, so that when the BBand changed directions, it was time to exit the trade and look to enter in the opposite direction.
While we are on a summer break through the end of August, we are still testing a new combination of indicators along with a 3 pip box setting that is showing great promise. More testing is needed, but early results have created a lot of excitement with my team. We’ll be releasing all the details once we are sure that this new method holds up over time (and varying trading conditions).
So to sum up, you don’t really need any indicators to trade the Renko Charts profitably, but there is a few that work well with this charting system, and my group and I can recommend them without hesitation.
The post Renko Charts – Which Forex Indicators Work Best With Renko Charts? appeared first on Big Financial BLOG.
source http://blog.bigfinancial.co.uk/renko-charts-which-forex-indicators-work-best-with-renko-charts/
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