The renko strategy is one of the many forex strategies used in trading the currency exchange market today. It is a trend following charting tool known for its efficiency in filtering out noises from a commodity’s price movement so as to get a hold of the underlying forex trend. Due to the unstable nature of the forex market, there are times it is difficult to tell if the market is trending up, trending down, or not trending at all. It may seem like the market is going in a particular direction but the market noise is actually burying the actual direction. When this noise is filtered out with the help of the renko charting tool, one can actually have a clearer view of the market’s real direction and then trade accordingly.
HOW RENKO STRATEGY WORKS:
Renko, which is believed to have originated from the Japanese word “renga”, means “brick”. Its function is purely based on the price movement of a commodity for a preset amount of pips. It ignores every element of time as can be seen in other charting tools like the candlesticks, bar charts, and line charts, and maintains a focus on the direction of the price of the commodity and the amount of pips involved. If the brick is set for, say 50 pips, the idea is to stay on that brick till the price of the currency pair has moved 50 pips. Just like was mentioned earlier, the forex renko strategy does not recognize time, so it can stay on just one brick for as long as a whole day, waiting for the price to move 50 pips before another brick can be formed.
THREE SIMPLE STEPS OF THE FOREX RENKO STRATEGY
The forex market is very dynamic and traders can use different tools in different ways to achieve a common goal, depending on what works for them. Here is an example of a simple forex renko strategy with just three steps;
1. FIND THE TREND DIRECTION:
It is not uncommon to find the trend direction using renko charts in combination with technical indicators such as moving averages and stochastics. Using the 200 exponential moving average as the indicator, then the trend is said to be up if the price is above 200 EMA; if it is below 200 EMA, then it is a downtrend. That is one way to find the direction of the trend using the renko strategy.
2. ENTER THE MARKET AT THE RIGHT TIME:
One can enter the market at the right time using the 13 period EMA as a trigger. The key is to wait for the appearance of at least two green bricks above the 13 EMA, at the appearance of the second green brick is the tie to enter long.
3. EXIT THE MARKET AT THE RIGHT TIME:
Use a protective stop one brick size below the 13 EMA. This tells the trader to either stay with the trend, so long as the brick is above 13 EMA.
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