Big Mike's Trading Blog

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Are you utilizing the benefits of Renko charts for NinjaTrader?

As you know, I am a huge advocate of multi-time frame trading.  I think no trader should look at just one single chart to make a determination of when or where to trade.  Traders that attempt this method usually have such an overloaded chart you can't even see what is going on, and half the indicators don't even agree.

I like to look at three different charts.  I like to use different styles of charts, so I can see price in different ways.  For example, Range, Volume, and Renko.  Each chart has a unique purpose, and each time frame a unique picture of the market.  Following that, each type of chart (range vs. volume, volume vs. renko, etc) provides a unique perspective of price.

If you haven't tried Renko charts yet, you should take a look at them.  Here is a brief description of renko:

A type of chart, developed by the Japanese, that is only concerned with price movement; time and volume are not included. It is thought to be named for the Japanese word for bricks, "renga". A renko chart is constructed by placing a brick in the next column once the price surpasses the top or bottom of the previous brick by a predefined amount. White bricks are used when the direction of the trend is up, while black bricks are used when the trend is down. This type of chart is very effective for traders to identify key support/resistance levels. Transaction signals are generated when the direction of the trend changes and the bricks alternate colors.

For example, a trader will sell an underlying asset when a black brick is placed at the end of series of climbing white bricks. Since this type of chart was designed as a way to follow the general price trend of an asset, there can often be false signals where the color of the bricks changes too early, producing a whip-saw effect.

Here is a side-by-side comparison of Range vs. Renko on the same period of market activity:

Above: Range Chart

Above: Renko Chart

On the BMT forums there are several good discussion about the use of Renko bars.  The discussions point out both the advantages and disadvantages of renko. 

Here is one such discussion that covers the basics in an all-around fashion:

Here is another that specifically spells out the downfalls of renko:

And finally, one more on comparing range to renko:

I hope you'll broaden your charts and find that you benefit from these discussions! :)



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