What is the best Renko trading system and what are the differences compared to a Renko trading method?
Renko trading system and Renko trading method are often referred to as being interchangeable. However, these are not at all the same and there are significant differences in how each would be traded – consider some basic differences:
- Trading system
- Mechanical trading
- Take all trades that occur
- ‘Easier’ to learn
- Trading method
- Not mechanical trading
- Take all trades that occur unless they are filtered
- ‘Harder’ to learn BUT ultimately more profitable because more losing trades are avoided than winning trades missed
So, I would say that the best Renko system is actually a Renko method, where instead of trading all setups mechanically, they would be filtered or avoided when they would have lower odds for profit.
Additionally, there would be trade management strategies to use for increasing profit size when method trading over the fixed size when system trading.
Renko Trading System And Trading Method Entry Differences
When you refer to your Renko chart day trading, do you sometimes say you are trading a system and sometimes say you are trading a method?
Of all the things I would like to accomplish in teaching Renko day trading, having everyone clearly understand that they are trading a method and not a system would be at the top of the list.
I want to trade as ‘system like’ as possible and our trading method is based on the component rules for 3 trade setups as if we were trading a Renko system. However, instead of being traded mechanically without exception, these Renko setups can only be traded if they ‘pass’ the conditions from trading filters.
What If You Renko System Traded Inside Consolidation?
Look at the chart below and the area between the 2 vertical lines. This is a trading period that transitions into consolidation as denoted by the orange box on the momentum indicators that are below the Renko chart.
What if you took all trade setups mechanically [marked by the circles on the chart] because you were trading a Renko system? You would have lost on all of the trades – but these same trades would have all been filtered and avoided by the Renko trading method.
And also note that the other trades not inside the orange box were also filtered either for room to price or because they were counter momentum entries – these additional trades were also all losses.
In this case, there would be 11 Renko trading system trade losses, while there are no Renko method trades that would have been done.
It is these method trading filters that become a major difference between a Renko trading system and method. You can only trade your ‘base’ setups if they are not filtered by the following:
- Trade entries with 3 Renko bricks or less of room to a support or resistance price
- Counter momentum trade entries
- Trade entries inside of consolidation
Filtering trade entries for these conditions is important because they decrease the setup odds for a trading profit.
Yes, trade filtering will cause some winning trades to be missed, however, there will be more losing trades that are avoided. And this is why I would say that the Renko trading method is more profitable than trading all setups as a mechanical system.
Renko Trading System And Method Trade Management Differences
Besides the trade entry differences between a Renko trading system and method, there are also differences in trade management. This is again a function of the difference between mechanical system trading rules that are always followed, compared to specific conditions that would adjust these rules in a trading method.
It wouldn’t matter whether you were trading a Renko system or method, it would be necessary to trade with a stop loss amount and a profit target amount for your trade management.
I would suggest that the stop loss amount is the same, regardless of whether you were trading a system or method. It is critical for trade management to have a maximum loss per trade.
Renko Trading Method And Increasing Profit Size
But once your trade is profitable and you have hit your initial profit target, the Renko method could include trading strategies for when that profit could be increased. In our trading method, we call the strategy for increasing our initial profit diagonal breakout potential.
However, in a Renko trading system, you would take your profit mechanically as a fixed amount, just like your trade entries and your stop loss. Missing the opportunities to increase the trade profit amount is another example for why a Renko method would be more profitable than a system.
When you look at the chart above [and to the right of the vertical line] – the 4 yellow circles would be base setups that could all be Renko trading system trades. But in the case of trade setup filtering for the Renko trading method, the blue circle would replace the yellow circle3 sell.
What is the difference between yellow circle3 and the blue circle?
The yellow circle cannot be Renko method traded because it is filtered by support from the blue horizontal line and trend line. The blue circle is then the failure break sell entry, meaning that at the entry point the 2 trading lines fail to remain as support.
But what is most interesting about this chart is the management differences between the yellow circle1-2 sells and the yellow circle1-blue circle1 sells. This is the difference between trading and managing mechanically and using strategies to expand profit size.
In the case of only taking base partial profits of 4 bricks [the orange squares] -vs- using the profit expansion strategies from diagonal breakout potential [the blue squares], the 2 mechanical sell trades have smaller gains than the Renko method profit gains.
Renko Trading System And Method Video Differences
In this trading video, I am going to discuss the differences between a Renko trading system and Renko trading method. The trading discussion will compare mechanical trading to filtered trading and how losing trades can be eliminated. Additionally, I will talk about using the diagonal breakout potential strategy for increasing the profit size in method trading over system trading.
Click Link To Watch Video: Renko System And Renko Method Differences