This post is all about the Renko chart technical analysis. In this post, you will learn how to use Renko charts for technical analysis in your trading. You will also learn how to use Renko charts to find the direction of a trend, when to enter and leave a trade, and today’s technical analysis of the SP 500 Futures Renko chart.
- To uncover trading or investment opportunities, Renko charts can be used independently of any technical indicators.
- Renko charts are good for finding levels of support and resistance.
- Renko charts only use closing prices. Lows and highs don’t matter. Plan and trade accordingly.
Renko Chart Technical Analysis: Characteristics of the Chart
Understanding the characteristics of the Renko chart is critical to ensuring that you derive the greatest possible value from the charting tools available to them.
- Renko charts are trend-following charts.
- Renko charts are constructed only on the basis of the closing price. Highs and lows are not taken into consideration.
- When the block size is larger, small retracements and corrections are less noticeable. As a result, only the longer and broader patterns are discernible. For investors with a longer time horizon, this is especially advantageous.
Larger vs Smaller Brick Sizes
For example, as you can see in the two charts below, the first one uses a smaller brick size and, as a result, exhibits more minor short-term trends than the second. However, because the second chart uses the greater brick size, long-term investors will not witness a drop until the price reaches $800. Furthermore, during that period, it plainly displayed a W, or double bottom, shape, indicating that Tesla was unquestionably on the rise from that point on.
Similar patterns to those found on candlestick and bar charts, such as head and shoulders, triangles, and double tops and bottoms, may be found on Renko charts as well. Renko charts, as compared to other types of charts, such as candlestick or bar charts, may be simpler to see patterns since there are fewer small price fluctuations.
Drawing support, resistance, and trend lines on Renko charts is a breeze because of the way the charts are constructed. Once the support, resistance, and trend lines have been created on the charts, it is possible to make educated decisions about how you want to manage your holdings in the portfolio. Renko charts are trend-following charts, which means that by following the trends, you may maximize your profitability.
How to Use Renko Charts to Detect Trend Direction
There are a variety of strategies that may be used to determine the direction of a trend on Renko charts. Here are a few examples, but they are not exhaustive:
- Moving averages
- Trend lines
- Parabolic SAR
Here’s an example of an SP 500 Renko chart with the 100-Day EMA applied.
As illustrated, the SP 500 corrected along the declining trendline for a period of time before turning around and breaking above the downtrend trendline.
As seen in the following example, the Parabolic SAR has been applied to the Tesla Renko chart.
When to Start and Exit Trades
Because the Renko chart is primarily a trend-following chart, the green or red bricks indicate when it is appropriate to enter and exit a trade. If you want to be even more careful with your decisions, the entry-exit method can alternatively be based on the formation of two successive same-color bricks on the chart. Aside from that, you may utilize the exponential moving average (EMA) as a “trigger” to signal an entry or exit in the direction of a major trend.
Two Successive Same-Color Bricks Method
Renko Chart Technical Analysis
SP 500 FUTURES traded below the strong resistance level, 4176, during the overnight sessions. Shortly after the U.S. open, the bulls pushed it higher. It firmly stood above 4176 and then raced toward the next resistance level, 4200. It closed slightly below 4200; however, there is a very good chance for the bulls to continue the strong upward momentum tomorrow. 4230 is within reach once again. Based on the Renko chart technical analysis,
- The Renko chart uses a traditional 6-point brick size.
- On the upside, 4200 is the immediate resistance zone.
- If the SP 500 Futures breaks above 4200 and holds, 4200 becomes the support level. The next resistance is 4230.
- On the downside, 4176 / 4164 is the strong support zone.
- Psychological barriers: 4100 / 4200
It was an up and up trading day on Monday. The strong resistance, 4176, was finally broken. The SP 500 Futures did test the 4200 resistance level, but it closed slightly below 4200 in the end.
- On the upside, 4200 is the immediate resistance zone for the SP 500 FUTURES. The next resistance level will be 4230.
- On the downside, 4176 is the first support area, followed by 4128.
Below is the daily Renko chart
How to Use Renko Chart Technical Analysis in Trading – Use Support, Resistance, and Trendline
A Renko chart provides a way to see the price movements easily and concisely. It filters out the minor price movements because a Renko brick requires a predetermined amount of movement. They also eliminate the time element. Unlike the bar or candlestick charts, there is no Renko brick drawn on the chart when the price has not moved up or down at least the predetermined amount within a given timeframe. Since the noises are removed from a Renko chart, it is easier to identify a trend, support or resistance on the chart.
In today’s Renko chart, the SP 500 Futures simply continued its uptrend from 4152. The first resistance level was 4176, which did take some time to break; however, it was not visible on a Renko chart. We knew 4176 was hard to break because 4176 / 4164 have been the support and resistance area many times. In order for the SP 500 FUTURES to move higher, 4176 had to be broken. Today was the day. Now, 4164 / 4176 has become the strong support zone. The next target would be 4200 and 4230.