Forex investors are constantly seeking new and innovative ways to trade the markets and increase their profits. One such method that has gained popularity in recent years is the use of Renko bricks. Trading Forex with Renko charts are a type of charting tool that was developed in Japan in the late 18th century. The charts are based on price movements rather than time, which makes them ideal for traders looking to focus on price action.
In this article, we will explore the origins of Renko charts and their application in forex trading. We will also discuss how forex investors use Renko bricks to help achieve positive trading results.
Origins of Renko Charts
Renko charts were developed in Japan during the Edo period (1603-1868). The charts were originally used to track the price movements of rice, which was the primary commodity traded at the time. The word “renko” means “brick” or “block” in Japanese, which is fitting as the charts are made up of blocks or bricks.
Example of Renko Chart
Unlike traditional candlestick charts that are based on time, Renko charts are based on price movement. The blocks on the chart represent a fixed price movement, regardless of the time it takes to get there. For example, if a trader sets the block size to 10 pips, each block will represent a price movement of 10 pips.
Renko charts have several benefits over traditional candlestick charts. One of the most significant benefits is that they eliminate market noise.
Renko charts only display price movement that meets the set block size, which makes it easier for traders to identify trends and price action. Renko charts also make it easier to identify support and resistance levels, which are essential for traders to make informed trading decisions.
How Forex Investors Use Renko Bricks
Forex investors use Renko bricks to help achieve positive trading results in several ways. The most common application is to identify trends and price action. Renko charts make it easy to identify trends because they eliminate market noise.
The blocks on the chart are either bullish or bearish, making it easy for traders to identify the direction of the trend. When the blocks are predominantly bullish, it indicates a bullish trend, and when the blocks are predominantly bearish, it indicates a bearish trend.
Traders can also use Renko charts to identify support and resistance levels. Support and resistance levels are price levels where the market has historically shown support or resistance.
Traders can use these levels to enter or exit trades. Renko charts make it easier to identify support and resistance levels because they eliminate market noise. Traders can use the blocks on the chart to identify where the market has historically shown support or resistance.
Another way forex investors use Renko bricks is to identify price breakouts. Price breakouts occur when the price of a currency pair breaks through a support or resistance level.
Traders can use Renko charts to identify price breakouts because they eliminate market noise. Traders can use the blocks on the chart to identify where the market has historically shown support or resistance. When the price breaks through a support or resistance level, it indicates a price breakout.
Renko charts can also be used to identify reversal patterns. Reversal patterns occur when the trend of a currency pair changes direction. Traders can use Renko charts to identify reversal patterns because they eliminate market noise.
When the blocks on the chart change from predominantly bullish to predominantly bearish, it indicates a bearish reversal pattern. When the blocks on the chart change from predominantly bearish to predominantly bullish, it indicates a bullish reversal pattern.
Example Use Case of trading Forex with Renko
Let us consider an example of how forex investors use Renko bricks. Suppose a trader wants to trade the EUR/USD currency pair using Renko charts. The trader sets the block size to 10
pips, which means that each block on the chart represents a price movement of 10 pips. The trader then observes the chart to identify trends, support and resistance levels, price breakouts, and reversal patterns.
Suppose that the trader notices a bullish trend on the Renko chart. The blocks on the chart are predominantly bullish, indicating that the price of the EUR/USD currency pair is increasing. The trader then identifies a support level at 1.2000. The support level is a price level where the market has historically shown support. The trader decides to enter a long position at 1.2020, which is 20 pips above the support level.
The trader sets a stop loss at 1.1980, which is 40 pips below the support level. The stop loss is a price level where the trader exits the trade if the price of the currency pair moves against them. The trader also sets a take profit at 1.2100, which is 80 pips above the entry point. The take profit is a price level where the trader exits the trade if the price of the currency pair moves in their favor.
Suppose that the price of the EUR/USD currency pair breaks through the resistance level at 1.2080. The price breakout indicates that the bullish trend is likely to continue. The trader decides to move the stop loss to 1.2040, which is 40 pips below the entry point. The trader does this to protect their profits in case the price of the currency pair moves against them.
Suppose that the price of the EUR/USD currency pair reaches the take profit level at 1.2100. The trader exits the trade and makes a profit of 80 pips. The trader’s positive trading result was achieved by using Renko bricks to identify trends, support and resistance levels, price breakouts, and reversal patterns.
Conclusion
Renko charts are a valuable tool for forex investors looking to focus on price action. The charts eliminate market noise and make it easier to identify trends, support and resistance levels, price breakouts, and reversal patterns. Forex investors use Renko bricks to help achieve positive trading results by making informed trading decisions based on the information provided by the charts.
While Renko charts are a valuable tool, they should not be the only tool used by forex investors. Traders should use Renko charts in conjunction with other technical and fundamental analysis tools to make informed trading decisions. Traders should also practice risk management and use appropriate position sizing to manage their trading risks.
In conclusion, Renko charts are a valuable tool for forex investors looking to trade the markets using price action. By using Renko bricks, traders can identify trends, support and resistance levels, price breakouts, and reversal patterns, which can help them make informed trading decisions and achieve positive trading results.
Forex trading is a complex and challenging field that requires the use of sophisticated tools and strategies to achieve positive trading results.
One such tool is the directional movement system (DMS), which has been widely adopted by forex traders as a means of identifying market trends and making profitable trades.
In this article, we will explore the origins of the directional movement system, how it works, and examples of its use in forex trading.
Origins of the Directional Movement System
The origins of the Directional Movement System
The directional movement system was developed by J. Welles Wilder in 1978 as a means of identifying the strength of market trends. Wilder, a trader and author of several books on technical analysis, is best known for his development of the relative strength index (RSI) and the average true range (ATR), both of which are widely used by forex traders today.
The directional movement system is based on the concept of directional movement, which is defined as the difference between the current high and the previous high or the current low and the previous low. This concept is used to determine the strength of market trends by calculating the average directional movement over a given period of time.
The DMS is made up of two components, the positive directional indicator (+DI) and the negative directional indicator (-DI), both of which are used to identify market trends. The +DI measures the strength of upward movements in price, while the -DI measures the strength of downward movements. These indicators are plotted on a chart and can be used to generate trading signals.
How the Directional Movement System Works
The directional movement system is based on a set of rules that are used to identify market trends and generate trading signals. The first step in using the DMS is to calculate the true range (TR), which is the greatest of the following:
The difference between the current high and the current low The absolute value of the difference between the current high and the previous close The absolute value of the difference between the current low and the previous close Once the true range has been calculated, the next step is to calculate the directional movement (DM) for the current period, which is defined as follows:
Upward DM = current high – previous high Downward DM = previous low – current low The next step is to calculate the average directional movement (ADM) over a given period of time, typically 14 periods. This is done by calculating the sum of the positive and negative DM over the specified period and dividing by the true range. The result is then multiplied by 100 to obtain the +DI and -DI values.
Once the +DI and -DI values have been calculated, they can be plotted on a chart to identify market trends. A bullish trend is indicated when the +DI is above the -DI, while a bearish trend is indicated when the -DI is above the +DI. The degree of separation between the +DI and -DI can be used to determine the strength of the trend.
Examples of how to use the Directional Movement System
The directional movement system can be used in a variety of ways to generate trading signals and identify market trends. Here are a few examples:
Identifying Trend Reversals
One of the key uses of the DMS is to identify trend reversals. When the +DI and -DI are close together, it indicates that the market is range-bound and there is no clear trend.
However, when the +DI and -DI begin to diverge, it is a sign that a trend may be forming. When the +DI crosses above the -DI, it is a bullish signal, indicating that a new uptrend may be beginning. Conversely, when the -DI crosses above the +DI, it is a bearish signal, indicating that a new downtrend may be beginning.
Identifying Entry and Exit Points
The directional movement system can also be used to identify entry and exit points for trades. When the +DI is above the -DI and the trend is bullish, it may be a good time to enter a long position. Conversely, when the -DI is above the +DI and the trend is bearish, it may be a good time to enter a short position. The degree of separation between the +DI and -DI can be used to determine the strength of the trend and the potential for profitability.
Setting Stop Loss and Take Profit Levels
The directional movement system can also be used to set stop loss and take profit levels for trades. When entering a trade, a stop loss order can be placed below the recent low for a long position, or above the recent high for a short position. Take profit levels can be set based on the degree of separation between the +DI and -DI, as well as previous support and resistance levels.
Confirming Other Technical Indicators
The directional movement system can also be used to confirm other technical indicators. For example, if the RSI is showing an oversold condition, but the +DI is above the -DI and the trend is bullish, it may be a good time to enter a long position. Conversely, if the RSI is showing an overbought condition, but the -DI is above the +DI and the trend is bearish, it may be a good time to enter a short position.
Limitations of the Directional Movement System
While the directional movement system can be a powerful tool for forex traders, it is not without limitations. One of the key limitations is that it is a lagging indicator, which means that it may not be effective in predicting future market trends. In addition, the DMS can produce false signals during periods of volatility or when the market is range-bound.
Another limitation of the DMS is that it is a technical indicator and does not take into account fundamental factors that can influence market trends. For example, a sudden change in economic policy or a major geopolitical event may have a significant impact on market trends, which may not be reflected in the DMS.
Conclusion
The directional movement system is a valuable tool for forex traders who are looking to identify market trends and make profitable trades. Developed by J. Welles Wilder in 1978, the DMS is based on the concept of directional movement and is made up of the +DI and -DI indicators, which are used to identify upward and downward movements in price.
The DMS can be used in a variety of ways to generate trading signals, identify trend reversals, and set stop loss and take profit levels. However, it is not without limitations, including its lagging nature and its inability to account for fundamental factors that may influence market trends.
Ultimately, the effectiveness of the DMS will depend on a trader’s ability to interpret the signals it generates and to use it in conjunction with other technical and fundamental indicators. With the right knowledge and experience, however, the directional movement system can be a powerful tool for achieving positive trading results in the forex market.
The Average True Range (ATR) is a technical indicator that measures the volatility of a financial instrument.
It was developed by J. Welles Wilder Jr. in the 1970s and has since become a popular tool among traders in various financial markets, including Forex and the stock market.
What the ATR indicator shows
The ATR is calculated by taking the average of the true range over a specified number of periods. The true range is the greatest of the following:
The current high minus the current low The absolute value of the current high minus the previous close The absolute value of the current low minus the previous close The ATR is typically presented as a single line on a chart, with the vertical axis representing the ATR value and the horizontal axis representing time. A higher ATR value indicates a higher level of volatility, while a lower ATR value indicates a lower level of volatility.
How the ATR indicator can help you in your trading
One of the main uses of the ATR is to identify periods of high and low volatility in the market. During periods of high volatility, the ATR will be relatively high, indicating that the price of the financial instrument is fluctuating significantly.
Conversely, during periods of low volatility, the ATR will be relatively low, indicating that the price of the financial instrument is not fluctuating as much.
ATR for setting TP and SL levels
Traders can use the ATR to set appropriate stop-loss and take-profit levels in their trades. For example, if the ATR is relatively high, a trader may set wider stop-loss and take-profit levels to account for the increased volatility.
On the other hand, if the ATR is relatively low, a trader may set narrower stop-loss and take-profit levels, as the price is less likely to fluctuate significantly.
ATR used for entry and exit points
In addition to setting appropriate stop-loss and take-profit levels, traders can also use the ATR to identify potential entry and exit points in the market.
For instance, if the ATR is relatively high, it may be a good time to enter a trade, as there is likely to be increased price movement that the trader can capitalize on.
On the other hand, if the ATR is relatively low, it may be a good time to exit a trade, as the price is less likely to fluctuate significantly.
Another way that traders can use the ATR is to confirm trends in the market. If the ATR is consistently increasing, it may be an indication that the current trend is strong and likely to continue.
Conversely, if the ATR is consistently decreasing, it may be an indication that the current trend is losing strength and may be coming to an end.
ATR indicator best practices
It’s worth noting that the ATR is not a standalone indicator and should be used in conjunction with other technical and fundamental analysis tools.
For example, a trader may use the ATR in conjunction with trend indicators such as moving averages or oscillators like the Relative Strength Index (RSI) to get a more complete picture of the market.
In summary, the Average True Range (ATR) is a technical indicator that measures the volatility of a financial instrument.
It is used by traders to set appropriate stop-loss and take-profit levels, identify potential entry and exit points in the market, and confirm trends. While the ATR is a useful tool, it should not be used in isolation and should be combined with other analysis techniques for a more comprehensive approach to trading.
Today we’re talking about grid systems, and more specifically the importance and the impact of changing the volume exponent, also called the multiplier settings in your grid trading.
We will answer the question on how changing the multiplier setting changes the behavior of your Grid Trading algorithm.
In today’s video we will be discussing how to get started with Grid Trading Systems. Our focus is on Forex Grid Trading, but all information is relevant for using Grid Strategies on any financial instrument.
We are on the cTrader platform in our session today, making use of the Adaptive Grid Blazer from Forexcove. However, all information is applicable on MT4, MT5 or any other platform you may be using.
Getting started with Grid Trading Systems
This is the first video in a series that is going to focus entirely on grid trading and grid systems, and it is going to form a playlist on our Youtube channel as well.
So, if you are interested in grid trading or if you are new to this, or perhaps even if you are experienced and would like to get some tips and ideas on how to optimize grid systems for different financial instruments, you’ve definitely come to the right place.
As this is the first video, I’ve selected frequently asked questions that I think will be of interest to people coming into grid trading.
It’s not a thorough explanation of what grid trading is; we’re going to have a look at that in an upcoming video, but I will highlight a couple of things that I think are really, really important for you in order to get off to a good start.
Forex Grid Trading Best Practice
The first thing we want to talk about is what I call best practice, which essentially is getting to know your trading system very well.
So this tip does obviously not only apply for grid training. Whatever your trading strategy is, especially when it comes to automated strategies, you really need to understand how the strategy works.
And that means that once you’ve found a vendor that you trust, and you think the description of the automated strategy is a good match for you, after you download, you absolutely must apply it on a demo account, see it trade at normal speed, and get to know how it positions its trades, how it enters and exits trades as well.
This is tremendously important. It’s also important to start the optimization process early on.
If you have a good dialogue with the vendor, the vendor obviously will be able to help you with settings, configurations and considerations.
So why am I saying this?
I’m saying this because a lot of people, they buy an automated strategy, they slap it on a live account and they pray and obviously what’s going to happen is frequently they will look at its trading, if they don’t understand it, they might want to interfere or close the trades because they think it looks wrong.
You can avoid all that getting to know the strategy early on.
Remember, an automated trading strategy is a tool. It’s the synthesis of a manual trading approach.
It’s just done automatically. Therefore, in order for you to get the most out of any tool, you have to understand the tool, find out how it works.
So the second question we have received a lot over the years is a funny one because it’s not always framed like this, but the gist is:
Are Grid Systems Magical Money-making machines?
Obviously the answer is no, If you’ve been in the markets for any time at all, you will know that every single trading strategy fares well under certain market conditions, and not so well under others.
Let’s take an example. If you are a trend trader, you want to get the most out of trending markets, and you want to get out of markets that move sideways.
So for trend trading, you’re making money when the markets are trending, and you’re probably not making money when the markets move sideways.
Conversely with grid systems, grid systems, we take profit when prices retrace, which means that we’re scaling in and out while adding to position sizes. So this obviously fares very well in ranging markets.
In short, there are no magical approaches to trading any markets.
We have strategies that will work well under certain conditions, and not so well under other conditions.
Are all Grid Systems the same?
No grid systems are not all the same.
They vary in terms of feature set, how much you can modify its trading behavior, and how much you can configure the algo.
That’s one difference. The one we’re looking at here is called the Adaptive Grid Blazer.
It’s a complete grid system that allows for modification and optimization for different investor profiles. if you’re interested in getting to know this system more, you can click on the link here.
Generally, I would say, they’re two maybe three types of Grid Systems.
We have serious grid systems that are fully featured. You can also find good systems where the configurations are hardwired.
When I say hardwired, it means that the vendor has selected for you the optimal currency pair, or the optional instrument and settings and then from time to time you get updated files or an updated algo with the new optimized sets for the new market reality.
I think in general terms what you want to look for it is a fully featured algo, where you can change the parameters simply given that the market’s change significantly over time.
So, we have fully featured training systems and we have hardwired systems.
When I said we have type three, it’s because they’re also unfortunately some scams out there that are typically hardwired, where you can’t forward test, you can only back test, and it gives excellent results on back testing.
Not so great on forward testing. So be careful with those.
What’s a reasonable account size?
The reasonable account size is something you would have to discuss with the vendor of your algo. It depends on the configuration of the grid system and, it depends on your trader profile as well.
But as a rule of thumb, you will need some money as a grid system is a self financing trading strategy.
Just as a simple example, if you are trading a simple trend trading cross-over strategy, you know that you will only have one position open at any given time, and you know how much you risk per trade.
But as mentioned previously, when you do grid trading, we have a varying number of trades open at any given time.
And that also means that the exposure in the marketplace varies, because we’re financing our own trading as we’re scaling in and out of trades all the time
It also means that we need to have some money to be able to do that, and we need to have some leverage.
So the account size and leverage obviously ties in.
As a rule of thumb, you would want to have as much leverage as possible.
It’s still possible to get 1:500 or 1:300. Some offer 1:100, and many are pivoting towards 1:30, which is on the low side for grid systems.
Again, talk to your vendor, but as a rule of thumb, the absolute minimum is normally about $1000 and then 3, 4 or $5000 and upwards you will get the best results.
What is the ideal multiplier setting?
The multiplier setting is incredibly important, because it determines the trading behavior of your grid system.
The higher the multiplier is in general terms, the less prices have to retrace in order for you to exit with profit.
So why is that? Well, when prices move up, se will open more sell trades, and the higher the multiplication is, the less retracement I need to see before I exit all my positions.
Most grid systems operate with a multiplier of somewhere between 1.2 and all the way up to 3, which is quite high.
