Hello this is Mark from tradinformed.com and welcome to this video on: A
Simple Renko Trading Strategy using Excel. In this video I will be looking at
how you can calculate Renko charts using Excel and how you can then use this
information as part of a trading strategy. Before I go any further I'd
like to let you know that this video is the second part of a two-part video
series the previous video is How to Calculate Renko Charts there is a link
on the screen if you would like to watch this video and understand a bit more
about Renko Charts how they're calculated and what they're useful for
also if you enjoy this video please hit the like button and also remember to
subscribe to this channel for lots more videos like this. This video was going to
be about how to calculate Renko charts in Excel but I've decided not to do that
instead what I'm going to do is make a spreadsheet that includes all the
calculations and you can download this spreadsheet for free. Just head over to
tradinformed.com, there is a link on the screen at the moment. Sign up there and
you will receive a link with the spreadsheet calculations for Renko bars.
Now in this video I've already got the Renko bars copied into it and I will
just explain briefly as well this is actually a backtest model a tradinformed
backtest model on the left we have price data and here over here on the
right, green and reddish color we have long and short trades so basically I've
taken the Renko calculations and I've put them into this testing
spreadsheet now I click over here we can see we've got a trading strategy we've
got the capital got the market and down here we have our Renko bars so to go
back to this for just a moment as I've already said you can get these
calculations for free but if you are interested in getting this whole model
which I am showing on the screen at the moment, or lots of similar models, which
are a great way of testing trading strategies and refining them so they
become exactly what you want and exactly what you need to trade the market you're
interested in. Head over to the tradinformed.com shop, there is a link on the
screen and you will see all the latest models. So if you've watched the previous
video you will know all about Renko bars and charts I'll go over here again we
already know that each one of these Renko bars is exactly the same in terms
of price as well they all look exactly the same the height is exactly the same
in each one of these bars is set here so I can change this value whatever I like
to and the bars and the trading strategy will update accordingly
okay so the Renko strategy, I said it was simple, that we're going to use is
trading initially we're going to just be trading in the direction of the Renko
bars so anytime we have an uptrend shown here by the when we go from red to green
we'll go Long and whenever we have a downtrend like here we go from green to
red we will go Short so I click over here we
have this strategy programmed in and for each different bar size we have the
results here and here we can compare the S&P 500 data going back to 2000 to the
present time, early 2018, and we see that over this time period I've cherry picked
it slightly because what we had in the early 2000s like today is if we've had a
period of steady market increase over quite a long period so we've got some
shorts and we've got some Long's and if we're being realistic about what we can
expect for the stock markets over the future we're probably going to have to
bank on them being some periods of Short trades as well as Longs so over this
time period we can see here in the underlying market has got a had a
compound annual growth rate of 3.7 percent and a maximum drawdown of
something close to 57 percent now of course the problem with maximum draw
downs especially ones that large is a lot of people bail out just at the wrong
time 2008 2009 in particular so we've got a strategy here that has a growth
rate of 4% not really a lot different to be honest
compared to the market a slightly lower maximum drawdown so we need to do for a
trading strategy for in fact in market is we want to find what sort of
bar size is appropriate for that market I'm not talking about curve fitting and
over-optimizing it if any single trading strategy that we want to try we're going
have to choose something that is appropriate for that market if we're
saying that these exact results are going to be produced in the future then
we are probably not going to be that it's probably not going to be the case
but still we need to be able to get something that is appropriate has ideally
worked in the past and if you don't know whether your strategy has worked in the
past you can be pretty certain it will not work in the future so I've got a bar
size here of 125 points I've got a compound annual growth rate of 4.9% so
there is a few things that we can do to make this strategy better and one of
those is we can add a filter and the most basic filter of all is a moving
average and I'm going to only enter trades when the moving average is going
in our favor and you see how I do this I'm just going into the long trade
section and I'm adding a new condition a new logical condition I copy them down
like that I'm exactly the same for the shorts this time I'm going to check
whether the EMA is going downwards. It really is as simple as that you don't
need a trading form back test model to test this strategy of course you can do
it on your own but it is a useful framework that includes things like
profit targets and stop losses which make it a bit more realistic if you plan
to use those. So we can see we make a bit of a difference here by trading in the
direction of the 200 moving average another thing we can
do could make it long trade only a lot of people only want to trade long and in
case the stock market I fully understand that. So we can try different bar sizes
different filters and we could see how it affects our strategy let me see here
we get a compound annual growth rate of 4.6%
not quite as high as before but with lower maximum drawdown and one of the
key things of been able to trade a trading strategy over the long term is
lower drawdown because as soon as we start running into a sequence of losing
trades almost everybody is tempted to give up on a strategy we need to know
that the strategy we're pursuing has a reasonable level of drawdown but at a
level that we can cope with we can increase the leverage we can see that
increasing the leverage by twice or even three times has a huge effect on our
annual growth range our growth rate and we see that the maximum drawdown
although greater than before is still a lot lower than the underlying market we
could also test the effect of a trading of a profit target I've put that in we
can say that the strategy over time
gives these results now this trading strategy has been tested on the stock
market but would the same apply in a different market? and I'm going to
demonstrate that it can be, using data here from the forex market this is the
EUR/USD and all I'm gonna do to show you how easy it is is I'm just going to
copy the data in like this and because we've now got
slightly more price data than we had before I just need to drag it down and
to find out where our bottom row was and highlight this and double-click it down
the formulas automatically update and we need to set a bar size that is appropriate
for the size of market that we're dealing with and me see here that
because we're now dealing in pips and set this at 125 pips and we get
something reasonable now because this is a long short market I'm going to include
long and short trades and we can now again try different levels of bar size
and see what is appropriate for the market that we're testing and we're
trading
so try here 250 pips and we see we get something a bit
more reasonable I'm gonna reduce the leverage factor back down to one to one
and we see we can get a strategy that over a long period of time has
performed pretty well we've got a compound annual growth rate 5% and a
maximum annual drawdown of 27 and we're looking for as I said before we're not
looking to have a strategy we're not looking to over-otimize to curve-fit but
we need to have something that is appropriate for the market that we're
testing that we're trading and the only way we can do that is my testing what
has happened in the past you see here one way of thinking about it and I like
this explanation is we're looking for a sweet spot we're looking for an area
that showing pretty consistent results so if 205 gives fabulous results and 206
gives terrible results we need to discard both of them as not much use for the future
as a guide to future performance so once we found an area that's stable we can
then look to see well what is the effect of different types of targets we can try
a stop-loss
we see how that affects the results see we get a lower drawdown once again we
can say well if we're happy with the strategy let's have a look what greater
leverage would do let's see unsurprisingly we're getting a greater
compound annual growth rates at the expense of a greater amount of drawdown
we can change the size of our EMA filter and we can control all of this through
clicks on here so there we have two different markets both using a Renko
chart trading system we've got different options targets and different amounts of
leverage don't forget if you like to use Renko charts in Excel you can download
the calculations absolutely for free just go over to tradinformed.com and
Subscribe there if you want this exact spreadsheet go over to the tradinformed.com
shop and you will find it in there and if you would like more information
about trading the financial markets please go to www.tradinformed.com