One of the most frequent questions that I get asked is “what Renko box size should I choose?”. Most of the times, traders often follow up this question including their instrument or asset of choice that they are trading using Renko charts. It is interesting that the answer to the above question is with the question itself. If you’re still unsure what Renko box size to use, then read this article.
On another note, I am also asked as to what is the right renko box size to trade with. I would rather leave this question aside as I find this to be incorrect. There is no ‘right’ Renko box size, just as there is no ‘right’ indicator parameters that will give you the access to the ‘Holy Grail’. Just because you find trading a EURUSD fixed Renko box size of 10 pips doesn’t mean the same Renko box size will work on EURCAD for example.
So without further ado, read below to find out on how you can find the right renko box size to trade.
There are basically 5 simple questions to ask yourself in order to come up with the answer to what renko box size you should be trading with.
Pay attention to the instrument
We know Gold for example has a different pricing than currencies or other markets. Paying attention to the instrument or symbol you are trading marks the first question that you need to be asking yourself. With most brokers for example, currency markets are priced in 5 decimals meaning that the minimum price movement 0.00001. While the fractional pricing doesn’t really give you much, using 4 decimals helps. Now, if you were to trade EURUSD you know that the minimum reasonable price move would be 1 pip (10 pipettes if you use 5 decimals). Now if you consider Gold for example where the minimum price move is 0.01 you can see that the Renko box size you would use for EURUSD wouldn’t be the same when applied to Gold, or vice versa.
Mind the spreads
Spreads are inevitable with trading and even more so if you trade with a fixed spread broker. When choosing a Renko box size, pay attention to the spreads as well. For example, if your broker charges you a 1 pip spread on EURUSD, then you need to be very careful if you trade a 5 pip EURUSD renko box size. A 10 pip EURUSD Renko box size would make more sense as it also accounts for the spread.
Know your risks
Choosing a Renko box size has a lot of implications, from different chart patterns that might not be seen if you were using a different box size to the risk factor itself. Assume you trade a simple Renko reversal trading strategy where you go long on a bullish 3 bar Renko box reversal. If you were to trade a 10 pip Renko box size, then your stops would need to be 20 pips from your entry or two boxes below. Assuming you were trading a 50 Pip fixed Renko box size, then your risk automatically increases to 100 pips, and so on. When applying the Renko box size, it is important that the trader also pays attention to the amount of risk. As a general thumb rule, the larger your box size, the bigger your risk (and reward) gets.
Determining your goals
Another factor to bear in mind when choosing a Renko box size is your trading goals itself. For example, are you happy to take 20 – 50 pips off the table or do you prefer to trade on the longer run? This simple question can provide great insights, especially when combined with risks. Typically, a long term swing trader with large enough equity is better off trading the bigger Renko box size than compared to an average retail trader, who is trading with just $1000 in trading capital.
Choosing the right Renko box size
And last but not the least, the box size that you choose for Renko determines the time frame (figuratively speaking) on the Renko charts that you are trading. For example, a EURUSD 10 Pip Renko chart is probably equivalent to a 30 or 15 minute chart time frame. Trends can appear and vanish quickly. Trends can be very strong or markets can be choppy. A 50 Pip Renko chart for EURUSD would typically behave like a 4-hour chart time frame and is more suited for the swing trader and with good risk management. And finally, a 100 pip EURUSD Renko box would be similar to trading a daily or a weekly time frame charts. Your box sizes are higher, it takes more time to print a new Renko box and your stops are often more wider than usual.
The chart below shows a 10, 50 and 100 Pip Renko chart to visually explain the above.
And if after all this you find it difficult to find a good Renko box size to trade, simply use a 14 period ATR and then round it off to the nearest decimal. Example if a EURUSD Renko chart with ATR 14 shows 0.0054, the use a 0.005 or a 50 Pip Renko chart. If you think you would be risking too much then simply break it down to half and use a 25 Pip renko chart.