Hello this is Mark from Tradinformed.com and welcome to this video on: How to
Calculate Renko Charts. If you currently have charts that looks something like
this. But would prefer them to look something
like this. Then this is the video for you. Renko charts like a lot of the Japanese
charting styles do a great job of making what we see on the screen on our charts
simpler. In this video I will be showing you how
you can calculate Renko charts and also what is the point of Renko. And in the
follow-up video I will be showing you how you can take Renko charts in Excel
and you can back test them as part of a trading strategy. So many years ago when
I used to work in an office. I had a manager who had the most extraordinary
desk I had ever seen and what was so unusual about this desk was that it was
completely empty apart from a single pen. And in the days in those days of paper-full
offices when everybody had reports letters and books strewn across their
desks it was all the more remarkable and I think there is a lesson in this for
all of us traders. All of us are guilty of over-complicating overthinking and
over-analyzing the markets and one way that we can deal with this
over-complicating is with Renko charts. So if we look back at the chart we can see
that there are a few remarkable things about the Renko bars and one of those is
that each of these blocks is the same size exactly the same height, the other
thing that is also immediately apparent is that the blocks move in waves or
trends and if we compare it back to the original market we can see exactly those
or very similar waves and trends there but we can see them so much more clearly
in the Renko bars. And the final thing is not immediately obvious but it is
clearly there once you're looking for it and it's the fact that at each change in
direction from green to red back to green we have a hanging block or
brick as they're sometimes called and this is quite a significant feature of
Renko bars and the reason that we have a hanging brick or block is that it takes
more effort for using the Renko system it takes more effort to change direction
than it does to maintain the same direction which is why we can have these
long unbroken trends. Okay so if we start right at the beginning here we can see
that we've got our initial bar here starting at 1,300. So how do we calculate
Renko charts well the first thing to be aware of is that Renko always uses the
closing price and it doesn't matter what time frame that you'd like to use. It
could be five minute bars hourly daily or monthly but we've always got to use
the closing price so the thing to be aware of is that the direction of the
preceding bar always matters Renko favors the direction in which the
market is moving so that, as I've said before, this is why we get these dangling
market turning points because we have to have a move twice as large in order to
change direction so if we're moving upwards each a hundred point bar is
created with a hundred point move but if we want to change direction and start
going downwards we need to have a move equivalent to 200 points and this is why
we get these nice trends because a lot of the moves that we see in the markets
the chop-ups and chop-downs aren't big enough to trigger a Renko reversal. So
let's start right at the beginning this very first bar starts at 1,300 now this
is a rounded figure that I've used to make this example easier to understand
and make the charts look a bit nicer so we start at 1,300 points so before we
can draw any bar at all even the very first one we have to go, to close,
100 points or more in either direction so because this very first bar is an
up bar we know that we have closed at least greater than 1400 so 1400 or
greater we've got our first bar so then if we look at bar number 2 we'd
naturally assume that bar number 2 starts at the end
in which case at the top of bar number 1. But that's not the case here because we
don't know whether it's going to be an up or a down bar until it's been created
so what we do know is that a target our upward target to create bar number 2 as
an up bar is 1,500 which is 100 points greater than our previous target but if
we want to make a down bar here we would have to be greater than third that would
have to be lower than 13-hundred so as we can see bar number 2 is created and
we have closed higher than 1500 now as we can see we have a market turning
point and so the target to the upside would have been a close a close
equal or greater than 1600 but in this case we actually get a close lower
than 1400 so we get a new down bar. At this point we have established a new
downtrend so our target to the downside is 1,300, if we were to reverse and put
in another new high again we would have to be greater than 1500 so you can see
the logic here once a bar is in once a once Renko is in motion either to the
upside or to the downside each successive bar is created with a move
equivalent to the bar size but because we get these dangling bars we know that
we actually have to have a move twice as large to establish a new move in the
opposite direction
so as we've gone through this calculation I think you can see the
whole logic and purpose behind Renko what it's doing. It is a form of breakout
strategy, it's a form of trend following strategy in that the trailing stop is
moved behind us effectively each new bar is creating a new moving stop behind us
and our price is moving along in the direction of the market one feature of
Renko that may not be immediately apparent is that we tend to assume that
each bar is going to be equivalent to a block providing we move up by the
minimum amount but this is not a time-based
charting system so that if we have an extremely large move within our time
period say if we have a move of 300 points we wouldn't just draw one Renko
bar we would potentially be drawing three new ones, if we've closed above the
equivalent of three bars so each bar although it normally moves slower than
the normal market if we have a very large price move that would be reflected
in our Renko bars. So I hope you found this video useful, please remember that
we have another video in this sequence the link is on the screen and please
click on that if you'd like more information and more videos like this
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trading the financial markets how to back test your trading strategies please
go to www.tradinformed.com