Spot Significant Price Movements with the Renko Indicator
There have been more than a few charting innovations to come out of Japan. This article is going to discuss one of these in detail, namely, the Renko Indicator. This article will also discuss renko charts, which are unusual in that they are solely concerned with price changes. Finally, this article will guide you with using the Renko Indicator in MetaTrader 4.
The Renko Indicator
A normal price chart plots the price each time a certain unit of time transpires. In contrast, a Renko chart is only concerned with price, and not time – and it only displays price changes that meet a certain minimum magnitude. Price changes that don't clear this hurdle are ignored. This filtering out of smaller price movements keeps the focus on significant moves, and helps you to disregard noise.
This is quite different to a regular chart, with which you always receive a new bar as time progresses. With the Renko indicator, you only get a new bar plotted if the price change meets your set requirement. For example, you might decide that 20 pips is a significant move for the GBP/USD currency pair, and that anything smaller than this is simply a distraction.
Renko charts plot blocks (also known as bricks) of a certain fixed value in terms of price movement. Using a Renko chart with a block size of 20 pips would allow you to see what you're really interested in at a glance. Doing so enables you to more readily recognise markets trends, and even identify possible support and resistance levels.
Are you ready to start trading with the Renko indicator? You can access it for free with Admiral Markets' MetaTrader Supreme Edition plugin. Download it for FREE today by clicking the banner below!
Using the Renko Indicator in MetaTrader 4
MetaTrader 4 comes bundled with a reasonably solid selection of trading indicators. Unfortunately, the Renko Indicator is one of the tools missing from the standard package. If you are aiming to use the Renko indicator in MetaTrader 4, you're going to need to delve into the world of custom indicators. Custom indicators are those that have been created by users coding with the MQL4 programming language.
The vast spectrum of indicators opened up by the possibility of users coding their own tools is one of the great strengths of MT4. Needless to say, the quality of these indicators can vary greatly, depending on where you obtain them. What is the best way for you to locate good-quality Renko charts for MetaTrader 4 to download in 2020? Well, the best Renko indicator for MT4 will be the one that comes from a highly-trusted source.
This is why you should consider downloading the MetaTrader Supreme Edition plugin for MetaTrader 4 and MetaTrader 5. MTSE is a custom plugin that has been carefully developed by a team of industry professionals on behalf of Admiral Markets. Not only does it include an extended selection of indicators, but it also boasts additional features, such as the 'Trading Simulator', a bespoke 'Trade Terminal', and a live news feed.
Pertinently, the indicator package includes the Admiral Renko indicator. The image below shows how the Admiral Renko Indicator appears in MT4 once you have installed MetaTrader Supreme Edition:
Source: MetaTrader 4 Supreme Edition - Installing the Admiral Renko Indicator
Double clicking on Admiral Renko launches the custom indicator, and allows you to tweak the settings to your preference. Some of the default values are shown above. Probably the most important setting for the MT4 Renko indicator is the block size and the colours displayed for the up and down-blocks.
You can see that the default value for the block size is 10 pips for Renko Forex charts. The default colour for the Admiral Renko indicator is blue for up-blocks, and red for down-blocks. The image below shows the Renko Indicator bars in MetaTrader 4, plotted on a one-minute chart of the EUR/USD pair:
Source: MetaTrader 4 Supreme Edition - EUR/USD 1 Minute Chart with the Admiral Renko Indicator applied
Now for the MT4 Renko chart, in this example we chose to make the up-blocks green, just to make it easier to view and assess the regular candlesticks. We also changed the block size to five pips for this example. The green up-bricks appear when the price has moved up by the specified amount – in this case, five pips. Similarly, the red down-bricks appear when the price has moved down by the same specified amount.
The dotted horizontal lines on the far right of the chart show where the price would have to move to next for the new bricks to appear. Notice how the MetaTrader 4 Renko bars tell a much simpler story than the normal candlesticks. Many Renko indicators do not allow you to plot the blocks directly onto your price chart. The Admiral Renko indicator thankfully does provide you this functionality, which can be useful for easier comparison. Admiral Renko also enables you to plot Renko candles as a separate chart, displaying the classic Renko look.
Viewing Renko Candles on a Separate Chart
An alternative way to present the information is to view the Renko candles on a completely separate chart. Doing this requires a few steps. Let's run through how to plot a separate Renko chart for MetaTrader 4. Apply the Renko indicator to a chart – for this example we're going to look at the EUR/USD currency pair again.
The time frame of the chart doesn't really matter, as you're going to be creating a separate chart. All the settings for the new chart will be driven by the values you enter into the Renko charts MT4 indicator. You then need to edit Admiral Renko in the indicator list (accessed from the 'Chart' tab). Scroll down in the list of Inputs to the 'OFFLINE CHART' section, as shown in the image below:
Source: MetaTrader 4 Supreme Edition - Adjusting the inputs for the Admiral Renko Indicator
You then need to enter a value for the offline chart period that is different to the standard MT4 chart timeframes. We have used six above, with 'Build Renko charts data' set to M1. This means that the offline chart will be an M6 chart. You then need to click on the 'File' tab and select 'Open Offline'. From the displayed list, select the relevant chart, as shown in the image below:
Source: MetaTrader 4 Supreme Edition - How to open an offline chart in MT4
Click 'open', you should then see a new chart like the one below:
Source: MetaTrader 4 Supreme Edition - An offline EUR/USD Monthly Chart
Please note that you may need to click on the candlesticks button (shortcut ALT+2) to make it appear as shown in the graph above. In the Renko chart, the solid white blocks represent the downward movement of the required magnitude, while the empty blocks represent the upward movement. This is the standard Renko appearance, with bricks of identical size zig-zagging on the chart.
Renko Trading Strategy
At the most basic use, Renko charts simply make it easier for you to view the state of the market. For example, a sequence of consecutive down-blocks makes it easy to confirm that the market is in a downtrend. One simple trading strategy that attempts to follow the trend is to take each block as a directional signal – an up-block representing a buy signal, and a down-block representing a sell signal.
It's possible to come up with more sophisticated applications, however. For example, on the 19-minute Renko chart for EUR/USD shown below, we have added a 10-period moving average. The moving average looks back at the Renko values – i.e. the previous 10 Renko blocks, and not the 10 previous 19-minute periods.
Source: MetaTrader 4 Supreme Edition - EUR/USD 19 Minute Renko Chart
Here, we can use the moving average in combination with the Renko blocks to provide trading signals. When the Renko blocks break under the moving average, it is a sell signal. When they break above the MA, it is a buy signal.
The Renko Trading System in a Wrap-Up
Renko in MetaTrader 4 is a reasonably versatile tool, and its application is constrained only by your own inventiveness. The simplest use of Renko is to allow you to view very easily that the market has moved by a significant chunk. How large that significant chunk needs to be is ultimately up to you to decide.
If you play around with the settings, you will readily discover what works more effectively for you. The best way to explore this is with a demo trading account, where you can experiment to your satisfaction without taking on any risk.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.