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Sunday, July 27, 2014

Renko Bars for Day Trading Futures

As many of you know, I am on the search for a clear, clean way to trade sweet crude oil futures with a small trading fund. So far, I have not hit on the perfect setup for me. But I am not deterred. I keep investigating new things, and want to share them, as I do. (it does NOT mean I know any more than you do about it, but just keeping the trader buddy attitude, okay?)

I LOVE trading. I think I love learning even more than trading sometimes. One of our readers shared that he uses Renko Bars (instead of candles) on his charts at Ninja Trader brokers. I had never heard of this before, and with some help from another smart reader, I was able to find Renko bars on Think or Swim, and put them on my Active Trader chart.

What do Renko Bars look like?

They say a picture is worth 1,000 words, so here's what they look like. Sort of like "bricks." So, in this setup, each bar is 5 ticks, on a 2 day chart.

This is five minutes on a 2 day chart, using candles.

Okay, so what do we notice about these charts?

  • First of all, the NOISE of the candle chart is vastly reduced by the Renko bricks.
  • There are no wicks (and some people will not like that at all);
  • The Renko is the cleanest looking chart of all. A pleasure to read.
  • Realize that Renko bricks are PRICE driven, and not TIME driven, which is why they look different, especially in the choppy sections. And because of this, you will not get Volume on this Renko chart, which is computed by time frames.

    How do Renko Bars work?

    As far as I can gather, from watching videos and listening to websites describe them, Renko bars just create a new brick whenever the price goes above or below the current brick. They will always be "touching shoulders" so to speak. If a brick represents prices, as an example, of 100.00 at the top, or 99.95 at the bottom, the minute the price goes to 100.01 or 99.96, a new brick will form, touching the former brick either below or above. It is clean, and it clear to the eye. Green bricks go up, red bricks go down. It is trend following, so to speak. There are many videos on the internet about Renko bars so if you're interested, you should check out the YouTube selections.

    What is the Trading System for Renko Bars?

    Well, there may be many, but here is one I found:

  • Go Long with Two green bricks in succession. Put your stop below the last red brick.
  • Go Short with Two red bricks in succession. Put your stop above the last green brick.

  • Exit:
  • Exit the Long with One red brick. UNLESS you have had 8 or more green bricks, then exit with 2 red bricks.
  • Exit the Short with One green brick. UNLESS you have had 8 or more red bricks, then exit with 2 green bricks.

  • Does it get any easier than this?

    Here's a video of a guy who computed a couple of months of Forex profits using this system, successfully. I found this fascinating!

    Backtesting Renko Bars Systems from forexreview.info.

    Am I Going to Trade Crude Oil with this simple 2-brick system?

    In a word, no. I personally would NEVER use only one trigger (in this case two Renko bars) to inform my trade. I personally am always going to add a MACD to my charting, and possibly some other indicators to give a confirmation. At the moment here is my Active Trader Chart. And I plan to put a 15 min. candle chart up for a bigger view of the market to use in coordination with this one.

    Okay, I admit that I'm not at all sure that these particular indicators are set at the right levels for Renko Bars. But you can see I have got confirmations galore that agree with the system. I have a 7 and 20 SMA on the chart.

  • MACD crossover and histogram
  • RSI Wilder direction
  • TTM Squeeze (a John Carter indicator) that seems to go off in accordance with the above.
  • and finally a price oscillator which I added just for the hell of it. Not really needed

  • In truth, I think I would rely MORE on my confirmation indicators than on the 2-brick system for actually placing a trade. Although I will be watching it closely on papermoney to see how it goes. Starting a whole new test now.

    How Do I Find Renko Bars on Think or Swim?

    Okay, thanks to J. for this information. I want to share it with other readers who use TOS platform.

    1. At the top of the chart,(next to "Style") there's a little wrench that opens up the Settings for each chart. Click on that and a "Chart Settings" box opens up.

    2. Go to the 3rd Tab, which says "Time Axis"

    3. On the left side, under "Aggregation Type", choose "Range" from the dropdown menu

    4. Under time interval, choose any time you want; I chose 2 days from the dropdown menu.

    5. Under Price Range, choose any range you want; I chose 5 ticks from the dropdown menu.

    6. Under Range Type, choose Renko Bars from the dropdown menu.

    I don't know what Phantom Bars are, so if someone else knows, please explain. I left that box unchecked. I checked everything else on the page, and put in 5 bars as the expansion area (at the end of the chart, to the right -- "blank space" so to speak). Hit Apply and OK to save everything and also save it with a chart name so you don't lose it.

    If you have war stories, or questions, or anything to add, please let us hear from you!

    Happy Trading!


    1. Hello. The example you mentioned to explain how Renko Bars work is incorrect. Using the same values you used in your example, if a Renko brick represents a price range of $0.05 where the top of the brick is $100 and the bottom of the brick is $99.95, then a new brick will ONLY form if the price moves up more than $0.05 or moves down more than $0.05. In other words, a green brick will only form if the price exceeds $100.05, and a red brick will only form if the price goes below $99.90. A new brick will NOT form if the price reaches $100.01 or $99.96 as you mentioned in your example. That's why it is very important to set up your Renko Bars range properly based on the stock (or any other security) price. The best approach is to set up your Renko Bars range by using the ATR (Average True Range), which is a moving average of true ranges over a specific period of time. Then you can manually adjust that range to come up with the most accurate buy/sell signals by looking at previous days charts and to make sure you avoid false signals, especially when the market is highly volatile.

      1. Thanks very much! Readers will appreciate some expertise in this!

      2. If you are interested. I would be happy to show you a very profitable system for trading that i have invented. dmprest@gmail.com

      3. I'm no longer trading, but perhaps my readers might be interested.

    2. Why aren't you trading? The blog is great. Were you long Cl or something?

      1. Haha. Wish it had been that. No, I lost my "everything" to real estate in the last recession. I'm
        likely to never come back from it, alas.