Advantages of Renko Charts
The most significant advantage of using Renko charts for stock trading is their simplicity. Renko charts are useful for stock trading because they make determining support and resistance levels very simple. Any price movements less than the brick size are filtered out by Renko charts. As a result, we are able to see the trend more clearly.
Renko charts, because they are all about price movement, may be utilized to make trading decisions on their own. Once a support or resistance level has been breached, a buy or sell order can be set, along with a stop-loss if needed.
Some traders like to use the chart in conjunction with the RSI to forecast the market’s peak or bottom. Typically, they seek price and RSI divergence on the Renko charts. However, when a trend is very strong, the divergence may not be precise. Because the divergence signal emerges too early in the trend, the trade fails.
Ways to Use Renko Charts for Stock Trading
Support and Resistance
Renko charts make it very simple to detect support, resistance, and trendlines. A trade action might be initiated if the support, resistance, or trendline is violated.
An example of a double bottom formation with a purchase signal on a chart is shown below.
Use Renko Chart Price and RSI Divergence
The RSI might be a useful indicator to utilize in conjunction with Renko Charts, but it might generate a buy or sell signal far too early in a strong trend.
The following is an illustration of the divergence between stock prices and the relative strength index (RSI). However, while divergence is a respectable technical analysis chart pattern, it is not always 100 percent accurate. On the left-hand side of the chart, you can see that the stock price has continued to rise despite the fact that the RSI has reached lower highs.
In this scenario, it is clear that the divergence pattern between the stock price and the technical indicator cannot be the primary factor influencing the decision-making process. Support, resistance, and trend lines should all be applied to the chart as part of the decision-making process when making trading decisions.
Renko charts exhibit the same patterns as candlestick charts, such as double tops or bottoms, head and shoulders, and triangles. Such patterns may be more apparent on a Renko chart since there are fewer small price fluctuations. This website provides a free Renko chart pattern scanner.