My Renko System Discussion

Hello all,

I have been thinking of a strategy that involves the use of Renko bars. Maybe a lot of you will not like the concept but I see potential in it and I would really appreciate some thoughts and advise.

The main principal is based on the fact that a trend is more likely to continue than to reverse.

So we have a renko chart like this one:

http://screencast.com/t/OWNlNGY1NW

The idea is as follows - we can enter a trade each time a new bar opens in the position it opens. In the long run we will have more lots on the side of the trend and make profit.

There are some issues of course. One is that if for instance we go long 3 times (lets assume 1 bar is 10 pips) and then a green brick is drawn and we enter short, then the price goes up again, the short position will be opened 20 pips below the last long position, which is not in our favor.

Another thing is that there is spread to pay.

As a possible work around I have thought of two possible solutions. They are both related to the lot size.

1. We can increase the lot size with one additional unit each time a position is entered. For example we have 4 long positions and they will be 0.1, 0.2, 0.3, 0.4. If a short position is to be opened it will be with only 0.1 lots. If the price goes up again, the count starts from 0.1 again.

2. We can open all long and all short positions in a sequence like this:

- we go long 4 times - 1,2,3,4 lots, then we need to go short twice, so the lots will be 1,2. Then the price goes up again and we can continue the previous sequence starting from 5 lots.

I would really appreciate your feedback as well as whether it is worth writing an EA to back and forward test this, as using a simulator is very hard and more important inaccurate.

Thank you!

That sounds interesting.... give me a couple of days to test and code it out... will let you know. Thanks for sharing....

Yes, interesting idea. When do you take profit - I suppose you could get an ea to book profit when net is "n". It then starts over again.
Since with renko, in your example, an opposite signal takes 20 pips, it may work better with using constant range bars instead, increase the size to 15 bars so spread is a lower percentage. Worth testing.
Pardy

What might be your SL? I assume twice the renkosize plus spread?

10 pip Renko bar is like... if you go short and reversal bar appears... that means the short position is -20 pips + spread out.

You will kill your account get a margin call if you get stuck in a range, as you are incrementing your you lot size.

You will definitely need a huge account if you go 0.1 lot, then 0.2, etc..

But I like the concept. So maybe instead of going 0.1, 0.2, 0.3, etc, maybe there is a little less aggressive approach ?

Example: buy 0.1, then 0.1, 0.2, 0.2, 0.3, 0.3.

Or just having a preset take profit in mind and closing as soon as you are + 20 pips and then restart and doing this multiple times a day until 1% in profit.

I sounds like it has a fairly sound foundation.

The trend is more likely to continue than reverse.

And you add more positions as the market goes your way.

I would question if increasing the size of the lots was such a good idea - the trend will eventually reverse as it can't continue forever. When the trend reverses the last position you added will be bigger than all the others and that could wipe out all your profit.

It is the same approach as grid trading. Just with a renko chart.

One can imagine a horizontal line and one builds, if range-bound, several buy and sell positions until price breaks out of the range and then capture the profit.

The question is just how much margin one might have to use if price is ranging and if one can survive that without getting a margin call.

Thank you for your interest, an Expert Advisor will greatly contribute, so that this can be forward tested properly. Very much appreciated!

The take profit can be tricky, as due to the nature of the strategy you cannot fix it, still trend lines can be used or support and resistance levels or round numbers etc.,

I agree that there will be a lot of margin required. Still I am pretty sure that this cannot be fully automated and if traded properly manually (of course a robot must be used to open the positions for precision), with risk depending on account size it could work pretty well. It may be traded during news or session opens. It does not necessarily mean to wait until you have 100 lots opened and you are on the verge of getting a margin call. If you have good entries that are on reversals positions will easily go into profit in the beginning.

The lot size can also be adjusted to a more conservative approach, still the increase should be sufficient to make a difference when the trend starts and it should be tested again

I have been thinking of using an indicator like ADX value to calculate the lot size but it is lagging and does not work well, or it does?

Thank you all for your time to share!

This is a dangerous one when lot sizes are incremental
But it is still a feasible concept because the markets tends to move like that I have looked at a trailing stop and no increments
But the better concept is to close all trades in a small profit and continue
I haven't found an ea to close all trades on the charts at a designated profit
Worthwhile looking at and implementing

I think Renko charts are much simpler to read than other charts. Also it’s cleaner because it only involves price movements and no volume or time movements. I think it may be good for scalpers or day traders but for medium or long term traders I don’t find it really useful.