Understanding Renko

[EnsoTrader]

I've just started looking at Renko charts.

I admit upfront, it's very new to me.

Maybe I'm missing a base concept, but just comparing a CL 12-14 5 tick chart to the 5 minute chart, the highs and lows on the two charts don't match. The Renko seems to be "missing" some price action.

ie. the 11/7/2014 0850 bar in the 5 min shows a low of 78.35 but the renko for the same area shows a low of 78.39.

Is the charting correct or am I just not understanding something?

[NinjaTrader_ChelseaB]

Hi EnsoTrader,

Renko Bars are not intended to show you price action like a tick bar. Instead they show when a certain amount of gain or loss has been hit.

From the help guide:
Renko bars are built based solely on price movement with no regard to time or volume. Each bar is known as a "brick" and a brick is plotted as green when price is moving up and red when price is moving down. A new brick is plotted when price exceeds the high or low of the previous brick by a specified amount set as the Brick size.

Below is a link to the help guide on Bar Types. Please see the section 'Understanding Renko bars'.
http://www.ninjatrader.com/support/h.../bar_types.htm

[arbuthnot]

I've just started looking at Renko charts.

I admit upfront, it's very new to me.

Maybe I'm missing a base concept, but just comparing a CL 12-14 5 tick chart to the 5 minute chart, the highs and lows on the two charts don't match. The Renko seems to be "missing" some price action.

ie. the 11/7/2014 0850 bar in the 5 min shows a low of 78.35 but the renko for the same area shows a low of 78.39.

Is the charting correct or am I just not understanding something?

Hi EnsoTrader

Chelsea has given you great information there.

There's been a lot of discussion in the forum about Renko bars, they have serious pros and serious cons.

The essential thing is this: just say we're working with a 4 Renko (as you may well do in the ES).

If there's an up bar, a new up bar will print when price has increased by 4 ticks, unless price has decreased by 8 ticks first, in which case, a new down bar will be printed.

The morale of this story is: Renko bars reverse if and only if price has reversed by twice the bar length.

When coding, only refer to Renko bar closes, as everything else is a 'hall of mirrors'.

That said, they're great to enter trades with - but best not try to work trades with them, if you see what I mean!

May I refer you to this thread:

http://www.ninjatrader.com/support/forum/showthread.php?t=68224

[EnsoTrader]

Hey arbuthnot

Thanks.

I understood that the bars are time and volume independent, it was just a surprise that they didn't fully account for all price points.

If I understand, given an ES 4tick Renko chart, then the market could move 10 ticks while only showing 1 brick. 4 ticks for the brick and 3 ticks above and/or below (4+3+3=10).

Not quite what I was expecting. But that makes it easy to interpret now.

Enso

[arbuthnot]

Nice to hear from you, Enso.

You've got it spot on about price can move 10 pts without a bar change on a 4 Renko.

But this is the price you pay for the smoothness. As long as a trader understands why Renko is so smooth, as you do, then these charts can be peerless, esp. for price action: I can't emphasize this too much.

Some conventional indicators are just about useless with Renko, but try drawing some trend lines.

May I point you to the LineAlert indicator available for download in this forum, I believe, which is terrific with Renko. There are also ways of having trend lines drawn automatically.

I always make sure I have my stop 2 Renko bar lengths behind the open.