The Renko method trading indicators are based on price momentum, because of the effect momentum has on price movement continuation.
The reason is that momentum leads to price continuation and momentum extremes and divergences lead to price reverses. The Renko method trading indicators and Renko method trade setups have been developed to show both of these.
The Renko method uses 3 different trading indicators. These are plotted on the Renko method chart below, and named as follows:
- Price envelope – red and green dots seen around the Renko bricks
- Extreme – the yellow line below the Renko bricks
- Momentum extreme – blue and purple line overlaid on the extreme indicator
Renko Method Trading Indicators
Below is an outline that further discusses the Renko method trading indicators. Following the outline is a Renko method video discussing the trading indicators and introducing the Renko method trade setups.
Price Envelope
- Envelope around gray moving average midline that has a momentum component that shifts the dots from red to green. When momentum is below 0 the dots are red and when above 0 the dots are green
- The chart is viewed as being in buy mode when there are green dots on the bottom and sell mode when there are red dots on top
- Renko Trade Setup Note: regardless that the dots are green on the bottom, buys would not be entered on red bricks. As well, sells would not be entered on a green brick when the dots are red on top
Momentum extreme [MEx]
- MEx is a smoothing of the momentum component from the price envelope shift. This turns the indicator into an oscillator that moves from +100 to -100 – +60|-60 are considered extreme
- Besides showing whether momentum is extreme, this indicator is used to show price momentum divergences. These divergences are lower low in price-higher low in MEx | higher high in price-lower low in MEx
- And especially useful is what is called MEx flow – or the direction of momentum on a price retrace
- Renko Trade Setup Note: Due to the importance of momentum for price continuation, a trade would not be entered against the momentum
Momentum extreme2 [Extreme]
- Like MEx this extreme indicator shows momentum at an extreme between 0-1 and is viewed at an extreme at .2|.8
- It is a faster indicator than MEx which also shows price divergences.
- Renko Trade Setup Note: This indicator is especially used for addon-trades when it ‘hooks’, as this is an indication of momentum continuation
Click Link To Watch Video: Renko Chart Trading Indicators
