A commonly asked question on renko charts is whether you need to have additional indicators to trade on the chart. And if yes, what are those indicators that are best suited to trade with renko charts.
As you might know, renko charts are strictly based on price. Time, which is plotted on the x-axis, is irrelevant when it comes to this unconventional chart type. Based on the number of pips price move, which can be determined by yourself, the renko bricks plot the price bricks accordingly. You might know that probably the best indicator is price itself. Therefore, by determining the price action and the patterns that are formed, traders don’t really need to have any further indicators to be used.
Depending on your level of understanding of the financial markets, such as identifying trends, highs/lows formed in price, the retracements and so on, traders have a higher chance of capturing prices at a good level to enter into the trend. Even without using indicators, renko charts can help you to scalp the markets, whether you are in it for 10 pips or 100 pips, renko charts makes is entirely possible depending on the type of technical trading strategy that you make use of. It is entirely up to the trader and depends on how they want to conduct their renko analysis of the charts and also in determining the brick size..
Money management or risk management can also be utilized when trading with renko charts and especially without indicators. Due to the very nature of the reversals in renko boxes, it can be of great help when traders can position themselves in a trade based on understanding the price and other technical patterns are more easy to spot in this chart type.
For example, we know that a renko box reversal occurs when prices moves twice the box size in the opposite direction. Therefore, the risk of a reversal is always two times the box size. For example, 20 pips for a 10 pip renko box and so on. With this information, traders can prepare their positions before hand and thus be able to set a minimum take profit of 3 times the renko reversal, which in our example would be 60 pips. This, this effectively puts the risk at 20 pips while the reward at 60 pips, making it a 1:3 risk reward set up. Conservative traders can make use of a 1:2 risk reward as well, such as 20 pips risk and 40 pips reward.
This same principle can be applied to the renko chart analysis, regardless of whether you use indicators or not. Traders can build a money management strategy which allows them to make consistent profits regularly. We mentioned earlier as to what is the best technical indicator to use with this chart type. We suggest making use of moving averages and an oscillator, or making use of Bollinger bands and an oscillator.
Many a times Forex forums tend to be overrun by renko traders who make use of complicated indicators. It doesn’t quite help and it does not give you an edge in the markets.
In summary, as outlined in this article, traders don’t really need to make use of additional indicators to trade renko charts profitably. However, having said that, there are a few technical indicators that work well with renko charts.