Imprint

Copyright: © 2014 Géza Várkuti

Published by: epubli GmbH, Berlin, www.epubli.de

ISBN 978-3-7375-2629-6

Table of Contents

Imprint

Results*

Prologue

The Renko chart

Renko chart in MetaTrader 4

The use of the Renko chart

Renko zig-zag strategy

Entry – Stop - Closing

Pull into breakeven

Reopen

Lossy situations

Breakeven situations

Profitable situations

Summarizing

Difficulties - errors

Results – alternative exit strategies

XAUUSD

DAX

GBPJPY

Summarizing

Automated version – Expert Advisor

The author

Terms

High risk warning

Results*

First of all, I think everyone is interested in how profitable this strategy is, the results are available here:

2012

XAUUSD 1952 pip

2013

XAUUSD 4118 pip

Until 30 September 2014

XAUUSD 1916 pip

GER30 (DAX) 2690 pip

GBPJPY 1756 pip

* Past and back test data do not constitute guarantees of future performance.

Prologue

The first step on the road to perfection is to focus on the essentials. There is an ancient Japanese proverb, which sounds like this. It hasn´t been put here by accident.
On the following pages a centuries-old Japanese technique, the actual application of the Renko chart will be discussed. According to the descriptions, rice traders used this technique to visualize the movement of the rice prices. Were they the first futures traders?

The Japanese culture is known for simple elegant forms and clear lines, both in the world of design and thought, but this simplicity originates from reducing things to their most essential content.
If we see a chart of a currency pair, index or a bond today, we can read a lot of information out of it. Opening and closing prices can be seen up to 1 minute resolution, peaks, volumes, etc. Now if we pack up a few more indicator to the chart, draw more trend lines, look at Fibonacci-levels etc. we believe we know almost everything about the current status of the market, but what does all this really tell us about the future? Does it really help us to make trading decisions, or is all that wealth of information just giving us the illusion of predictability?

Already the temporal resolution of the chart itself is questionable. If we imagine that the exchange rate movements are really endless undulating streams, then why we do we aggregate that information in a way that makes a candle appear in every hour? Or why do we assume that the opening and closing value is a more important piece of information than the top or bottom of the spikes? Why do we say that the 10:00 tick - optionally the middle of a rising wave – is more relevant than the 9:46 tick? Why? Obviously we need handrails, we pull a time grid on the market to make it easier to map it, but it is fairly arbitrary. Don´t you think so too?

The Renko charts do not care about the time, but are solely focused on the movements. It only shows that the price has taken a certain distance or not. No matter how long that takes. This creates a clean chart with no unnecessary information, which is much easier to read.

Let's look at how it is structured, how it should be interpreted and applied.

The Renko chart

You obviously noticed in the previous figure that - unlike in a "normal" chart - here all the “candles” (which we call “bricks” here) are the same size. Well, this is the key point. A brick will be built and the next begins only when the price took a certain distance. For the sake of simplicity, let's talk about 50 pips (500 points) now. I mostly use this value in my strategy presented later. But why 50? I will tell you more about this later. Let’s go step by step, brick by brick now.

In this figure the rate started at 1.3500 and when it reached 1.3550, a brick was built and another one opened. Whether this brick has been built up over the course of two days or within five minutes - that does not concern us. At 1.3550 a new brick opened and let’s say that the rate fell slightly and then rose again. That initial drop is the downward leg you see in the figure.
From 1.3550 it began to build again and reached the level of 1.3600 – a new brick was built up again and the next one opened. The up and down movements in the current brick are also irrelevant for us. The last brick in this figure is not finished yet (still invalid), we only see that it is taking shape, this is why it is smaller than the other bricks. The price may be currently around 1.3610. Once it reaches the level of 1.3650, it will become valid and the next brick will open.

So, all well and good, because the example was quite simple and the price has gone in only one direction, but here is how we can go further:

What happened here a little later? As we see, around 1.3610 it reversed and the price began to fall. The beginning bullish brick disappeared and it became a candle wick. According to the rules of the Renko, two opposite bricks cannot be next to each other, so the first bearish brick started to develop at 1.3550. In other words, a new brick always starts at the right corner. Bullish in the upper right corner and bearish in the bottom right corner. So let’s suppose that the price continues to fall:

A bearish brick was built and another bearish one opened. This is a turning point on Renko. I would like to repeat once again, the things which we have just seen could have happened in minutes or even several days. So we have a horizontal time axis on the Renko chart, but it is not linear.

But let's continue with our example:

As can be seen, around 1.3450 we turned back again. We went all the way up to 1.3540 and then back down to 1.3530. Our last brick is still hesitating to be bearish or bullish. If neither down nor up there is no building brick, then the price changes look like a "wandering" doji.

Watch more:

As we see, the doji started up, it reached the level of 1.3550 and a bullish brick was formed again.

If the exchange rate moves up, our