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Animal Farm (Renko system)

  • #281
  • Edited 4:51am May 7, 2015 3:27am | Edited 4:51am
Quoting Wab
Ok. Why am I so interested in comparing charts with different brick sizes? My attempts to develop, or at least test different eas on Renko charts, have lead me to believe that pretty much everything that I have tried thus far might make a good profit in a run but then give it back in a congested market. Unless you can determine the direction of the market flow and set your ea to take trades only in that direction, the eas that I have tried lose over time. The HH HL LL LH rule is always there in a chart and a higher Time Frame or a Bigger Brick chart...
Thanks Wab,

Very glad you are still sharing your wisdom and knowledge.

You have the ability to simplify more advance concepts to a level where it even make sense to a guy like me.

O yeah, and only because you said you are checking to see if we are paying attention:

72/ 2 (2% per Renko bar) = 36 not 31 as per your calculations. So you'll need 36 Renko bars.

Cheers
  • #282
  • Edited 10:14pm May 8, 2015 9:33pm | Edited 10:14pm
I will plead ... difficult to write and think at the same time.

Next I will try and show you how to calculate how large a lot we need to have so that each brick increases an account by 2% per brick.
I will use a spreadsheet for that, and again ask for vigilance from the readers.
  • #283
  • May 9, 2015 9:44am May 9, 2015 9:44am
One advantage a Renko Chart has over other forms of charting is that it quantifies the data. If we set a
brick size to organize our interpretation of a chaotic environment, it allows us to set specific stops and
targets. We are not waiting on a lagging indicator to turn, or some other subjective event. We can just look
at a Renko Chart and monitor the bricks and the price of the bricks.

Have a look at this chart sample that shows three reversals:

Attached Image (click to enlarge)
Click to Enlarge Name: AUDUSDM2 Reveral Pattern 1.jpg Size: 36 KB



In each case a stop of three bricks and one pip is required so that the wick is contained within the stop.
(For now, I will leave the spread out of the discussion to keep things a little less complex.)

In each case the price then moves on a further 8 bricks, 5 bricks and 4 bricks respectively.
How can we set up our trading, so that each brick gained is worth a fixed percentage of our account?
Can the moves shown boost our account by a percentage even with a three bar and a pip stop?

Attached Image (click to enlarge)
Click to Enlarge Name: AUDUSDM2 Reversal Pattern 2.jpg Size: 41 KB


We have to take into consideration that any trade has to cover the stop (and the spread.) If our stop
was exactly three bricks our risk would be three bricks. To make each brick worth a two percent gain,
we have to think carefully about how to calculate that.

If we risk three bricks that should be 6% of our account and each subsequent brick would move one third
of that distance making its move 2% of the account. Looking at the second chart, and trailing a stop of
three bricks and pip, our first trade gives us a yield of five bricks, minus a pip and spread - somewhere
above eight and less than ten percent. The second trade gives us a yield of two bricks minus a pip and
the spread - somewhere over two percent and less than four percent. The third trade only manages to go
one brick before the three brick and a pip stop, plus spread, closes it. It makes two percent minus a pip and
the spread.

At this point I will throw this open for discussion critique etc.
  • #284
  • May 10, 2015 1:21pm May 10, 2015 1:21pm
Clearly the risk is large at 6% and I wonder what your success rate in trades is like to warrant such a gamble. Other than that I like where you are going with this thread as I am looking at something similar based on Renko, Outside Bars and Multiple Timeframes. One of the problems you face with a ten pip renko is that it is such a small bar size that it is easy to lose all your profit in commission and spread.

Good luck, I will follow with interest.
Gravity goes both ways in forex...
  • #285
  • May 11, 2015 9:26am May 11, 2015 9:26am
I am away for a few days so I won't be able top respond at length just yet.

You have indeed hit the nail on the head with your observation that a 6% stop is very large.
I agree that a ten pip brick is also hit with the spread and with slippage and that can
make up a significant percentage of a one brick move.

However, compare the ten and thirty pip charts and that six percent risk is only one brick on the 30 pip charts.

For a teaser, think of three ten pip bricks inside each thirty pip brick.

I should be back Wednesday night and will continue after that.
  • #286
  • May 12, 2015 1:08am May 12, 2015 1:08am
Quoting Wab
I am away for a few days so I won't be able top respond at length just yet. You have indeed hit the nail on the head with your observation that a 6% stop is very large. I agree that a ten pip brick is also hit with the spread and with slippage and that can make up a significant percentage of a one brick move. However, compare the ten and thirty pip charts and that six percent risk is only one brick on the 30 pip charts. For a teaser, think of three ten pip bricks inside each thirty pip brick. I should be back Wednesday night and will continue after...
Firstly,
I like the idea where you quantifies your weekly or monthly or whatever target as a number of bricks (example 36 bricks per week in you earlier post). That together with what % each brick is worth. Its a nice easy and clean way of keeping track of one's progress.

Secondly, I also agree that 6% risk per trade is very high. But then to aim at doubling your account in 1 week is also very high in my book. The point is, its scale-able. Say for instance you aim at doubling your account every 2 months (which is still excellent in my books). And say you only risk 1% per brick size. Then it means you will require a nett total of 72 bricks over the 2 month period. That's 36 bricks per month or only about 2 bricks per day. Then with a 3 brick SL it will be a 3% risk per trade which is already becoming more acceptable.

Say you only risk 0,5% per brick or 1,5% per trade (3 brick SL), which is quite acceptable. Say you still aim for 36 bricks per month. Then 72/0,5 = 144 bricks.
144/4 months = 36 bricks/ month. Which means you will double your account in 4 months. Still nothing to cry about....far from it.

But in the end the calculations are very very easy to make, and its nice to dream. But in the real world the main issue still remains to consistently bag those 36 bricks every month. Month in and month out. And there is where I hope to learn a few things from Wab and this thread.

Thanks Wab, for sharing your knowledge.

Cheers
  • #287
  • May 13, 2015 3:42am May 13, 2015 3:42am
Quoting Wab
I am away for a few days so I won't be able top respond at length just yet. You have indeed hit the nail on the head with your observation that a 6% stop is very large. I agree that a ten pip brick is also hit with the spread and with slippage and that can make up a significant percentage of a one brick move. However, compare the ten and thirty pip charts and that six percent risk is only one brick on the 30 pip charts. For a teaser, think of three ten pip bricks inside each thirty pip brick. I should be back Wednesday night and will continue after...

The problem for me with the ten pip charts are the increase in noise. Yes there are more long runs but also more bad trades. Looking forward to your next update

max
Gravity goes both ways in forex...
  • #288
  • May 13, 2015 4:59pm May 13, 2015 4:59pm
They say the best way to really understand something is to try and teach it to someone else.

Two very good points have been raised:

The noise that exists (with Ten Pip bricks) and the challenge of consistent brick bagging.

To deal with these I want to refer back to the use of ten pip bricks and thirty pip bricks and my overall analysis, which looks for a reversal of the HH, HL, LL, LH, trend. I can do the analysis on either chart but I will concentrate on a 10 pip brick chart for a starting place.

Attached Image (click to enlarge)
Click to Enlarge Name: AUDUSDM2 Renko 10 reversals.jpg Size: 116 KB


(There are many ways to enter a trade and we can go on to discuss a variety of these at a later point. For now I will use this reversal one.)

The 10 pip chart that I chose shows three places where a trend reversal has occurred. The down trend was illustrated with red lines and the uptrend with blue lines. Reversal levels are shown with horizontal black lines.

Reversal 1. occurs when a LL, LH, LL sequence is changed by a HH.
Reversal 2. occurs when a HH, HL, HH sequence is reversed with a LL.
Reversal 3. occurs when the market again swings from LL LH LL with a new HH.

This is all pretty standard stuff by now and anyone interested in this approach should have mastered identifying these reversals.

Now lets see how they relate to the 30 pip brick chart using Set Cross and Get Cross to line things up for us:

Attached Image (click to enlarge)
Click to Enlarge Name: MetaTrader - Pepperstone Renko reversals 10 -30.jpg Size: 286 KB


The number 1 reversal aligns with color change in the 30 pip bricks, as shown by the pink and blue crosses. When you get a 10 pip
brick LL, LH, HH, HL, reversal, which coincides with a reversal pattern on a 30 pip Renko, the stars have aligned.

Subsequent LL, LH HH, HL, reversals on the 10 pip chart fit the description of noise - if we concentrate on the 30 pip brick. They
occur inside of the 30 pip brick.

Many strategies use two different time frames to achieve a good entry level. Using different brick sizes accomplishes the same thing
in a more organized way. Big bricks are made from smaller bricks and as you examine the relationship between them, you will find that
reversal patterns in the LBF (lower brick frame) often occur within the wicks on a HBF (higher brick frame) chart. This makes for interesting
opportunities if you integrate the two wave counts.

I think that is enough for now. It may be complex at first, but with practice it becomes easier to read a set of charts like this and integrate
a LBF and a HBF strategy. I will make it easier soon (promise) but it is necessary to really get good at the analysis at this point.


Some things to try:

1. Check the relationships between HBF wicks and LBF reversal patterns.
2. Use a 6% stop on the 30 pip bricks and see how often it gets hit when you enter on the 10 pip reversal entry.
  • #289
  • Edited 10:32pm May 19, 2015 8:36pm | Edited 10:32pm
A picture is worth a thousand words ... here is a youtube video on HH HL LL LH analysis:

Inserted Video


Note the horizontal line and trend line that he draws to show the reversal level on each count.
He doesn't mark the turns with Fractals, which make is a lot easier.

Enjoy.
  • #290
  • May 19, 2015 10:13pm May 19, 2015 10:13pm
Hi Wab,

Just to let you know that I very much appreciate your contribution here. Please continue. I am just still trying to get my head around your previous post about the 10 pips/ 30 pips charts relationship. I am still struggling to understand its application fully. I think I need to study some more charts.

Thanks again
  • #291
  • May 20, 2015 9:16pm May 20, 2015 9:16pm
Thanks Mor707.

Once you check enough charts (just like the video) you will realize that the small (10 pip brick) HH HL LL LH fits inside the larger one on the 30 pip bricks.
A reversal or a breakout on the 30 means that we can expect some clear direction for a while at least on the 10. When I get to entry signals I hope it becomes easier to relate.

Unfortunately, I will offline for about three weeks starting next week. I hope to bale to do a meaningful update before I am away.
  • #292
  • May 20, 2015 11:44pm May 20, 2015 11:44pm
Quoting Wab
A picture is worth a thousand words ... here is a youtube video on HH HL LL LH analysis: https://www.youtube.com/watch?v=T-HkyhZCLOw Note the horizontal line and trend line that he draws to show the reversal level on each count. He doesn't mark the turns with Fractals, which make is a lot easier. Enjoy.
Hi Wab. Thanks for youtube video. I find it really helpful and simple. Especially when he talk about consolidation and how to deal with it. Market not really form HH HL LL LH in beautiful way and this consolidation and trendline knowledge really helpful to see if trend really reverse or just retracement.

And thanks for your contribution here in this thread.
  • #293
  • May 21, 2015 10:37am May 21, 2015 10:37am
It is a good video. Renko makes it even better.

On every chart there is a point at which the HH HL LL LH pattern reverses. You can identify these places and draw a horizontal line to the right. I call this line the E line (E for entry or Exit.) The E line occurs when price breaks above a LH or below a HL and reverses the trend.

Here is an example on a 30 pip brick chart.

Attached Image (click to enlarge)
Click to Enlarge Name: AUDUSDM3 The E line.jpg Size: 157 KB


From here on you should add the E line to every chart and the potential E line, teh line at which a trend reversal will occur if price penetrates it.

Now I will add fractals to this chart.

Attached Image (click to enlarge)
Click to Enlarge Name: AUDUSDM3 E line and Fractals.jpg Size: 166 KB


You can observe that at every HH HL LL LH there is a fractal and a wick. Also, at every other fractal there is a wick.

Now here is an important concept to understand: At every single fractal (wick) there is a reversal pattern going on, on a smaller scale. The reversal pattern is visible if you compare the 30 pip bricks to the 10 pip bricks. You can use Get Cross and Set Cross to line these up for analysis.

Locate any fractal on the 30 pip bricks then cross reference it on the 10 pip bricks. Have a good look at the HH HL LL LH sequence on the 10 pip bricks and you will just about always locate a reversal pattern and then you can locate a 10 pip brick E line. Practice this and then practice it some more.

Sometimes the E line on the ten pip bricks is quite a way from the top or bottom. This one was reasonably close and therefore presented a nice trade opportunity.

Attached Image (click to enlarge)
Click to Enlarge Name: MetaTrader - Pepperstone E line 10.jpg Size: 291 KB


You need to be able to identify the E line on the Ten pip brick charts with a glance. That comes with practice. Once you can do this we will start into how to trade it effectively.

I am not going to be able to update for about three weeks, starting on Sunday. That will give you lots of time to master the E line search and to start placing it on all your Renko Charts. Be sure to draw a potential E line at the last LH and HL. When the price breaks those you have a reversal and pending orders at those levels tend to make you happy. (That last chart had a nice run after the E line was broken ... they often do.)

Also have a look at the relationship between a 10 pip E line and where it occurs on the 30 pip chart. You just may notice something special working it form LBF to HBF. (There is always something interesting to learn when you look hard enough.)

In later posts I will introduce a nice signal from Bill Williams book "Trading Chaos" It is often earlier than the E line and very reliable. We will also look at a way to chart the LBF and the HBF on the same chart.

Lots ahead.
  • #294
  • May 22, 2015 12:13am May 22, 2015 12:13am
Quoting Wab
It is a good video. Renko makes it even better. On every chart there is a point at which the HH HL LL LH pattern reverses. You can identify these places and draw a horizontal line to the right. I call this line the E line (E for entry or Exit.) The E line occurs when price breaks above a LH or below a HL and reverses the trend. Here is an example on a 30 pip brick chart. {image} From here on you should add the E line to every chart and the potential E line, teh line at which a trend reversal will occur if price penetrates it. Now I will add fractals...
Makes a lot of sense. Do you start looking for a new E line on the 10 after a reversal brick with a wick (potential fractal)? Or do you wait for the fractal confirmation? Because then you would start looking at the 10 when you're already 120+ pips on the way. And price has gone through the E line already.
  • #295
  • May 22, 2015 12:54am May 22, 2015 12:54am
Quoting Anusragger
{quote} Makes a lot of sense. Do you start looking for a new E line on the 10 after a reversal brick with a wick (potential fractal)? Or do you wait for the fractal confirmation? Because then you would start looking at the 10 when you're already 120+ pips on the way. And price has gone through the E line already.
Hi,

Seeing that Wab may only reply in a couple of weeks time and also to test my own understanding, I'm going to try and answer this one:

I think what Wab said is; we should watch out for wicks on the 30 bricks chart or in other words a turning point/ reversal, which is 2 bars prior to a fractal been shown.

Attached Image (click to enlarge)
Click to Enlarge Name: Animal01.jpg Size: 61 KB
  • #296
  • May 30, 2015 7:29am May 30, 2015 7:29am
hi all

i think this indi works better for the crosshair.
Attached File(s)
File Type: mq4 Global_Crosshairs.mq4   5 KB | 525 downloads
  • #297
  • May 30, 2015 9:18am May 30, 2015 9:18am
Quoting eurix
hi all i think this indi works better for the crosshair. {file}
More ergonomic. Works great. Much easier to do the homework. Thank you.
Use axe Luke...
  • #298
  • May 30, 2015 9:35am May 30, 2015 9:35am
Wow, this thread is showing some amazing advanced concepts.

Thank you very much, WAB.

daveM
  • #299
  • May 31, 2015 1:11am May 31, 2015 1:11am
Quoting eurix
hi all i think this indi works better for the crosshair. {file}
Thanks eurix, it works great!
  • #300
  • Jun 9, 2015 1:07pm Jun 9, 2015 1:07pm
WAB

This post contains a tool that may help to compile older indicators to suit newer versions of MT4

http://www.forexfactory.com/showthread.php?p=7638439#post7638439


daveM
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