Tuesday, September 24, 2013

RENKO Chart "Cleaner"

How to Trade Choppy chart.

This was a request from a fellow trader.
1. Example of a Choppy chart, Look at the chart below

Can you establish a trend here?
Can you tell me where a solid support / Resistance is?

Can we get over this and make this a clean chart by reducing the noise?
Ofcourse we can. The best way to do is change your Candle charts to Renko charts.

Can we now trade it? with no noise this chart is easy now to trade.

Personally, I don't use any indicators here. Trade the price action only.

- Source of the following information (http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:renko)

There are two ways to specify the Brick Size for a Renko chart: Absolute Points and Average True Range (ATR). In addition, you can specify whether closing prices or high/low prices are used.

Absolute Points

With the "Absolute Points" method, you specify the size of each brick on the chart in points. The advantage of this method is that it is very easy to understand and predict when new bricks will appear. The disadvantage is that the point value needs to be different for high priced stocks than for low priced stocks. Typically you will need to choose a value that is roughly 1/20th the average price of the stock during the time frame you want to chart. Common values include 1, 2, 4, and 10.

Important Note: The Default for the "Pts" method is currently 14 which is too large for most stocks. You'll need to change it to a smaller number to get a useful chart.

Average True Range

The "Average True Range (ATR)" method uses the value of the ATR indicator to determine the brick size. The ATR indicator is designed to ignore the normal volatility of a stock and thus it can "automatically" find good brick sizes regardless of the value or volatility of the stock selected. ATR with a value of 14 is the default value for Renko charts and should generate a very usable chart in most cases.

High/Low Prices

When using High/Low prices, it's important to note that the rules for drawing Renko charts favor hollow bricks. In other words, regardless of the current direction of the bricks, you first check to see if any new hollow bricks can be added to a chart and, if they can, you then stop without looking at the lows of the day.

LETS CLEAN MESS UP and MAKE $