Supercharge Passive Income 5x with Renko Charts, Dividend Stocks & Covered Calls

Greetings and welcome to my story at lacois.com, where I share my personal journey in maximizing investments through dividend stocks, covered calls, and the valuable insights gained from Renko charts. As someone who has traversed the realms of investing, I believe in the power of knowledge and its ability to transform financial aspirations into achievable goals.

At lacois.com, I’m excited to share my experiences and expertise with both beginners and seasoned investors. My mission is rooted in the belief that clear and accessible guidance is essential in navigating the intricate world of investments. It’s about more than just financial gains; it’s about the path towards achieving my dreams and securing a stable future. Through my journey, I’ve come to understand that informed decisions and strategic planning can make all the difference.

If you are looking for a way to increase your passive income, you might want to consider using Renko charts and dividend stocks. Renko charts are a type of price chart that only show significant price movements, ignoring minor fluctuations. Dividend stocks are shares of companies that pay regular dividends, which are distributions of profits to shareholders.

You will learn how Renko charts and dividend stocks can help you invest more wisely and generate more income from covered calls. Covered calls are a type of option strategy that involves selling call options on stocks you own, giving the buyer the right to buy your shares at a specified price within a certain time frame. You receive a premium for selling the call option, which adds to your income.

The Significance of Renko Chart Brick Size in Technical Analysis and Strategy

Renko charts, a unique form of technical analysis, focus on price movements rather than time intervals, making them a valuable tool for traders seeking clarity in price action. Central to Renko charts is the concept of the “brick size,” which plays a pivotal role in shaping trading strategies. This section delves into the critical importance of the brick size, methods for calculating and setting it, and the associated pros and cons.

Why Brick Size Matters

The brick size in Renko charts represents the minimum price movement required to form a new brick on the chart. Unlike traditional candlestick or bar charts, which depend on time intervals, Renko charts only update when a specified price movement occurs. This unique approach offers several advantages:

1. Noise Reduction:

• Smaller brick sizes filter out minor price fluctuations and provide a clearer view of significant trends. This reduction in noise helps traders identify true market sentiment.

2. Trend Identification:

• By adjusting the brick size, traders can adapt to different market conditions. Larger brick sizes are useful for capturing major trends, while smaller brick sizes reveal short-term price movements.

3. Entry and Exit Signals:

• The brick size determines the generation of signals for entering and exiting trades in Renko charts. Traders often develop strategies based on Renko chart patterns to optimize their entries and exits.

4. Risk Management:

• Brick size impacts the risk-to-reward ratio of a trade. Traders can adjust their position sizes to align with their risk tolerance, which is inherently tied to the chosen brick size.

Methods to Calculate and Set Brick Size

Determining the appropriate brick size is a crucial aspect of Renko chart analysis. Several methods can be employed to calculate and set the brick size for Renko charts:

Method	Pros	Cons
Percentage-Based	Adaptable to price changes.	Brick size may vary over time.
ATR (Average True Range)	Reflects market volatility.	Complex calculation. Lags behind rapid price changes.
Fixed Value	Simplicity in decision-making.	May not suit volatile markets.
User-Defined	Customizable to trader preferences.	Subjective and requires experience.

1. Percentage-Based:

• Calculate the brick size as a percentage of the stock’s current price. This method allows for adaptation to price changes but can result in varying brick sizes over time.

2. ATR (Average True Range):

• Use the Average True Range indicator to gauge market volatility. The brick size can be set as a multiple of the ATR, ensuring that it reflects current market conditions.

3. Fixed Value:

• Set a constant brick size for Renko charts regardless of price or market conditions. While this approach simplifies decision-making, it may not always be suitable for volatile markets.

4. User-Defined:

• Traders can manually select the brick size for Renko charts based on their preferred trading style, risk tolerance, and historical analysis.

Pros and Cons

Pros:

• Clarity: Renko charts offer a clear representation of price movements, aiding in trend identification and reducing market noise.
• Adaptability: Traders can adjust the brick size in Renko charts to suit their specific trading strategies and risk management preferences.
• Objective Signals: Renko charts generate objective buy and sell signals, eliminating subjectivity in decision-making.

Cons:

• Lagging Indicator: Renko charts may lag behind real-time market movements, potentially resulting in delayed trade entries or exits.
• Limited Information: Renko charts only display price data, omitting other critical indicators like volume and open interest.
• Choppy Markets: In choppy or sideways markets, Renko charts may generate numerous false signals due to their brick-based structure.

Renko Charts: A Simple Way to Identify Trends and Signals

Renko charts are different from traditional candlestick or bar charts in that they only show price movements of a certain size, called the box size. Each box represents a fixed amount of price change, regardless of time. When the price moves up or down by the box size, a new box is added to the chart. The boxes are either green or red, depending on the direction of the price movement.

The advantage of Renko charts is that they filter out noise and focus on the main trend. They also make it easier to spot support and resistance levels, breakouts, and reversals. You can use Renko charts to identify entry and exit points for your trades, as well as to set stop-loss and take-profit orders.

For example, let’s say you want to trade Apple (AAPL) stock using Renko charts. You can choose a box size that suits your trading style and risk tolerance. A smaller box size will show more details and signals, but also more false alarms. A larger box size will show fewer details and signals, but also fewer false alarms.

Let’s assume you choose a box size of $1 for AAPL. This means that each box represents a $1 change in the stock price. The chart below shows how AAPL moved from January 1, 2020, to December 31, 2020, using Renko charts.

As you can see, Renko charts clearly show the uptrend in AAPL throughout 2020. You can also see how the boxes change color when the price reverses direction by more than the box size. For instance, in March 2020, when the stock market crashed due to the COVID-19 pandemic, AAPL dropped from $327 to $224, forming several red boxes. However, in April 2020, when the market recovered, AAPL rose from $224 to $293, forming several green boxes.

You can use these color changes as signals to buy or sell AAPL. For example, you could buy AAPL when a new green box appears after a series of red boxes, indicating a bullish reversal. Conversely, you could sell AAPL when a new red box appears after a series of green boxes, indicating a bearish reversal.

You can also use the support and resistance levels formed by the boxes as guides for your stop-loss and take-profit orders. For example, in Renko charts, you could place your stop-loss order below the lowest red box in a downtrend or above the highest green box in an uptrend. Similarly, you could place your take-profit order near the next resistance level in an uptrend or near the next support level in a downtrend.

Dividend Stocks: A Reliable Source of Passive Income

Dividend stocks are another way to boost your passive income. Dividend stocks are shares of companies that pay regular dividends to their shareholders. Dividends are distributions of profits that companies make from their business operations. Dividends are usually paid quarterly or annually, depending on the company’s policy.

The benefit of dividend stocks is that they provide you with a steady stream of income regardless of the stock price fluctuations. You can reinvest your dividends to buy more shares of the same company or diversify your portfolio with other dividend-paying companies. You can also use your dividends to pay for your living expenses or save for your future goals.

Dividend stocks are also less volatile than non-dividend-paying stocks because they tend to have stable earnings and cash flows. Dividend-paying companies are usually well-established and profitable businesses that have loyal customers and strong competitive advantages. They are less likely to suffer from economic downturns or market shocks than newer or riskier companies.

However, not all dividend stocks are created equal. Some dividend stocks may have high dividend yields but low dividend growth rates or vice versa. Some dividend stocks may have unsustainable payout ratios or face financial difficulties that could jeopardize their dividend payments.

Therefore, you need to do your homework before investing in dividend stocks. You need to look at various factors such as the dividend yield, the dividend growth rate, the payout ratio, the earnings growth rate, the debt-to-equity ratio, and the industry outlook. You also need to diversify your dividend portfolio across different sectors and industries to reduce your risk exposure.

For example, let’s say you want to invest in dividend stocks using Renko charts. You can use a screener tool to filter out dividend stocks that meet your criteria. For instance, you could look for dividend stocks that have a dividend yield of at least 3%, a dividend growth rate of at least 5%, a payout ratio of less than 60%, an earnings growth rate of at least 10%, a debt-to-equity ratio of less than 1, and a positive industry outlook.

One of the dividend stocks that meets these criteria is Johnson & Johnson (JNJ), a multinational healthcare company that produces consumer products, medical devices, and pharmaceuticals. JNJ has a dividend yield of 3.1%, a dividend growth rate of 6.2%, a payout ratio of 55%, an earnings growth rate of 11.4%, a debt-to-equity ratio of 0.5, and a positive industry outlook.

The chart below shows how JNJ moved from January 1, 2020, to December 31, 2020, using Renko charts with a box size of $2.

As you can see, JNJ also showed an uptrend in 2020, despite some volatility due to the pandemic. You can use the same strategy as before to buy or sell JNJ using Renko charts. For example, you could buy JNJ when a new green box appears after a series of red boxes or sell JNJ when a new red box appears after a series of green boxes.

You can also use the support and resistance levels formed by the boxes as guides for your stop-loss and take-profit orders. For example, you could place your stop-loss order below the lowest red box in a downtrend or above the highest green box in an uptrend. Similarly, you could place your take-profit order near the next resistance level in an uptrend or near the next support level in a downtrend.

By investing in JNJ, you would not only benefit from the capital appreciation of the stock price but also from the regular dividend payments. JNJ has paid dividends for over 50 years and has increased its dividends for 58 consecutive years. In 2020, JNJ paid $4.04 per share in dividends, which translates to $404 for every 100 shares you own.

Dividend Stock ETFs: A Stream of Passive Income

Dividend stock exchange-traded funds (ETFs) are a popular investment vehicle designed to provide investors with a convenient and diversified way to access a steady stream of passive income through dividend payments. These ETFs have gained significant traction among both income-focused investors and those seeking a balanced approach to long-term wealth accumulation. In this section, we’ll explore the key features, benefits, and considerations associated with dividend stock ETFs.

What Are Dividend Stock ETFs?

Dividend stock ETFs are investment funds that pool together a collection of dividend-paying stocks into a single, tradable security. They are structured to track the performance of an underlying index, which is often composed of companies with a history of consistent dividend payments. By investing in these ETFs, individuals can gain exposure to a diversified portfolio of dividend-yielding stocks without the need to buy each stock individually.

Key Features of Dividend Stock ETFs

1. Diversification:

• Dividend stock ETFs typically hold a wide range of dividend-paying stocks from various sectors and industries. This diversification helps spread risk and reduce the impact of poor-performing individual stocks.

2. Passive Income:

• Investors receive regular dividend payments from the ETF based on the income generated by the underlying stocks. This income can be an attractive source of passive cash flow.

3. Liquidity:

• Dividend stock ETFs are traded on stock exchanges, providing liquidity and flexibility for investors to buy or sell shares at market prices throughout the trading day.

4. Professional Management:

• ETFs are managed by professional portfolio managers who make decisions about which stocks to include in the fund, ensuring a well-structured and diversified portfolio.

Benefits of Investing in Dividend Stock ETFs

1. Income Generation:

• Dividend ETFs offer a consistent source of income, making them particularly appealing to retirees and income-focused investors.

2. Diversification:

• Investors benefit from the diversification of holdings, reducing the risk associated with individual stock investments.

3. Accessibility:

• ETFs are accessible to both novice and experienced investors, and they can be bought and sold through brokerage accounts, similar to stocks.

4. Lower Costs:

• Many dividend stock ETFs have lower expense ratios compared to actively managed funds, which can help investors keep more of their returns.

Considerations and Risks

1. Market Volatility:

• While dividend stocks are often seen as less volatile than growth stocks, they can still be influenced by market fluctuations, economic conditions, and interest rate changes.

2. Dividend Cuts:

• Companies may reduce or eliminate their dividend payments, which can impact the income generated by dividend ETFs.

3. Tax Implications:

• Dividend income may be subject to taxation, and the specific tax treatment can vary based on an investor’s jurisdiction and tax bracket.

4. Yield vs. Growth:

• Investors should balance their desire for current income with their long-term growth objectives, as high-yield dividend stocks may not always provide substantial capital appreciation.

Covered Calls: A Smart Way to Enhance Your Income

Covered calls are another way to enhance your income from dividend stocks. Covered calls are a type of option strategy that involves selling call options on stocks you own, giving the buyer the right to buy your shares at a specified price within a certain time frame. You receive a premium for selling the call option, which adds to your income.

The advantage of covered calls is that they allow you to generate extra income from your stock holdings without selling them. You can use covered calls to lower your cost basis, increase your return on investment, or hedge against downside risk. You can also use covered calls to create a synthetic dividend on non-dividend-paying stocks.

However, covered calls also have some drawbacks. The main drawback is that they limit your upside potential if the stock price rises above the strike price of the call option. In that case, you would have to sell your shares at the strike price or buy back the call option at a higher price. You would also miss out on any dividends paid by the stock after the expiration date of the call option.

Therefore, you need to be careful when choosing the strike price and expiration date of your call options. You need to consider factors such as the current stock price, the expected stock price movement, the implied volatility, the time value, and the dividend payment date. You also need to monitor your positions regularly and adjust them as needed.

For example, let’s say you want to sell covered calls on JNJ using Renko charts. You can use an option chain tool to find call options that suit your objectives. For instance, you could look for call options that have a strike price slightly above the current stock price, an expiration date within one or two months, and a premium that is at least 2% of the stock price.

One of the call options that meets these criteria is JNJ210219C00170000, which is a call option on JNJ with a strike price of $170 and an expiration date of February 19, 2021. The premium for this call option is $3.50 per share or $350 per contract (each contract represents 100 shares).

The chart below shows how JNJ moved from January 1, 2021, to February 19, 2021, using Renko charts with a box size of $2.

As you can observe from the chart above, JNJ continued to exhibit a relatively stable uptrend during the specified timeframe. Now, let’s delve into how you can use covered calls effectively with this stock.

Suppose you own 100 shares of JNJ, and you decide to sell one covered call contract with a strike price of $170 and an expiration date of February 19, 2021, as mentioned earlier. You receive a premium of $350 for selling this call option. Here’s how this strategy can enhance your income:

1. Generating Income: By selling the call option, you immediately receive a premium of $350. This premium is yours to keep, regardless of whether the option is exercised or expires worthless. It adds to your income from the dividend payments JNJ provides.
2. Income Enhancement: If the option expires worthless (i.e., JNJ’s stock price remains below $170 by the expiration date), you can continue to collect dividends and, if you choose, sell another covered call on your shares to generate more income.
3. Limited Risk: Your risk is limited because you already own the shares of JNJ. If the stock price rises above the $170 strike price and the call option is exercised, you will sell your shares at $170, realizing a profit from the stock’s appreciation. However, you may miss out on potential gains if the stock continues to rise significantly.
4. Income Boost with Dividends: While you collect the premium from the call option, you can still enjoy JNJ’s regular dividend payments. By combining the premium and the dividends, you effectively create an enhanced income stream from your investment.
5. Flexibility: If you believe the stock may rise substantially, you can choose to close out the call option position early by buying it back in the market. This would allow you to retain ownership of your shares and potentially benefit from further price appreciation.
6. Repeat Strategy: You can continue to employ this covered call strategy on an ongoing basis, selecting different strike prices and expiration dates to tailor it to your income and risk preferences.

Keep in mind that while covered calls can provide additional income and help protect your investment from downside risk to some extent, they do have limitations. If the stock’s price increases significantly, you may miss out on substantial gains if your shares are called away at the strike price. Additionally, if the stock experiences a sharp decline, the income generated from the covered call may not fully offset the loss in the stock’s value.

Conclusion

In my journey towards bolstering my passive income, I discovered the immense potential of combining Renko charts, dividend stocks like JNJ, and implementing covered call strategies. Renko charts became my trusted ally, offering invaluable insights into market trends and optimal entry and exit points. They provided a visual representation that significantly aided my decision-making process.

As I delved deeper into my investment strategy, I recognized the stability and reliable income that dividend stocks, such as JNJ, brought to my portfolio. They became a fundamental pillar of my passive income approach, offering a consistent stream of earnings.

However, the real game-changer was when I incorporated covered calls and Renko charts into my investment arsenal. This combined strategy not only allowed me to generate additional income from my dividend stocks but also provided me with the insights from Renko charts to optimize the timing and execution of these calls. It ensured I could enhance my earnings while retaining ownership and having a safety net to mitigate potential downsides.

It’s crucial to keep in mind that every investment path carries inherent risks. Conducting thorough research and truly understanding the strategies you employ are paramount. I always made sure to align my approach with my financial objectives and risk tolerance, carefully weighing every move.

In times of uncertainty, seeking guidance from a financial advisor proved to be a wise decision. Their expertise provided clarity when I faced doubts about my investment choices. Staying informed about market dynamics remained a constant practice, enabling me to make well-informed decisions on my quest for passive income and financial security.