Renko Day Trading System And What Trade Setups To Use

The Renko day trading system has been adapted from our Renko method.  The primary reason for wanting to also have a trading system and mechanical trading besides a trading method is that it can be an easier way for initially learning to trade.

However, when deciding which of the current trade setups to use for Renko day trading, it became necessary to eliminate a profitable method trade setup because the trade occurs too often inside of consolidation.

This Renko trade setup, namely the price envelope reverse, isn’t an issue for method trading because consolidation trades are filtered.  But since the Renko day trading system would take all occurrences of the price envelope reverse it would accumulate too many losing trades inside of consolidation.

Adding The Price Envelope Reverse To The Renko System

But what about all of the profitable price envelope reverse trades that would be missed – is there any way to add this setup to the Renko system?

Consider the following Renko chart trade reading questions:

  • What is easier to read on a Renko chart (a) Renko trading prices (b) chart consolidation periods (c) diagonal price movement from previous trading swings?
  • What has the greatest ease of price movement (a) horizontal price breakouts (b) the break into a previous swing diagonal?

I would answer these questions by saying that traders typically spend more time learning to identify significant Renko trading prices than when the chart is inside consolidation – but that a previous swing diagonal is the easiest to see.  Additionally, we have consistently seen that price continues back through a previous swing diagonal then when breaking out through a horizontal price and trading period.

In light of this, should the price envelope reverse be added to the Renko day trading system as a new trade setup, when the setup will be traded through a previous swing diagonal?

What Is A Renko Chart Previous Swing Diagonal?

As the name indicates, a Renko chart previous swing diagonal looks at the last trading swing and measures the distance from the current price envelope reverse to the start point [swing high or low] of the previous trading swing.

This is an important Renko trading strategy concept.  This swing diagonal and what we refer to as diagonal breakout potential tends to give us our biggest price continuation and movement.  This is certainly the case when a diagonal breakout is compared to a horizontal breakout.

Looking at the chart below and the current price envelope reverse at the yellow circle, the previous swing start point [or the low point] is the yellow line. Thus, the distance of the previous swing is the yellow circle-red brick low 50.05 to the yellow line-red brick low 49.84 or 21 ticks.

Renko Day Trading System New Trade Setup

We further see that the previous swing is a diagonal by looking at the slope of the gray midline and green price envelope dots, along with the slow momentum blue-purple lines that show the blue on top and continuing to rise throughout the Renko brick trading swing.

For the Renko day trading system, we can trade the price envelope reverse when there is a previous swing diagonal of at least 15 ticks or 5 bricks.  Since we have 21 ticks, in this case, the yellow circle would be a Renko system day trade.

Renko Day Trading System Trade Setup Review

The chart below shows the trading period with all of the potential Renko day trading system trade setups:

  • Purple circles show the setups for the price extreme reverse and the midline reject Renko system day trades
  • Yellow circles show price envelope reverse setups that have at least 15 ticks of previous swing diagonal and can be day traded by the Renko system
  • Blue circles show price envelope reverse setups that don’t have 15 ticks of previous swing diagonal and can’t by Renko system day traded

Renko Day Trading System And Adding A New Trade Setup

This will be discussed further in the Renko day trading system trade setup video, but take a further look at the blue circles and the orange circle.

There are 4 blue circles and none of these have a previous swing diagonal size to allow them as a Renko system trade.  This is beneficial in that if these 4 trades were taken, there would be 3 losing trades and 1 winning trade – again an example of why the price envelope reverse was originally eliminated for Renko system day trading.

Now, look at the orange circle midline reject.  If the yellow circle price envelope reverse wasn’t traded then the orange circle would be the addon to the purple circle price extreme reverse – and this later addon entry would have also been a losing trade.

This is another example of why the price envelope reverse has been added as a Renko day trading system setup.

Click link to watch video:  Price Envelope Reverse As A Renko Day Trade System Setup

 

2 Comments

  1. When you say automate renko chart using Ninja Traders – do you mean how to make your data into a renko chart -vs- a bar chart or candlestick chart?

    If that is the case: Make a new chart for the give underlying and then look in the property box where you will see a drop down menu for type under data series — simply select renko from the drop down list. After that you will then select your brick size, which is the next parameter directly underneath type – the charts that you see on the website use a brick size of 3.

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