When you talk about a trend following strategy, the first indicator that comes to mind is a moving average indicator. However, most traders struggle with catching the trend as pullbacks and fakeouts are often seen during a trend. Regardless of whether the trend is established or if the trend is chaging.
A distinct advantage Renko charts have in regards to trend is that by capturing purely the price movements, the noise is eliminated Combining this with a moving average in itself offers a fairly better odds of success. But what if this simple trend strategy could be improved?
Introducing the Stochastics oscillator. When applying an oscillator to a trend strategy, traders get a better view of the markets and the price action. Because oscillators show over bought and oversold conditions, it is a great addition to a trend following strategy.
The Renko trend and timing strategy employs a very simple set of indicators, the simple moving average and stochastics oscillator.
Renko Trend and Timing Strategy – Chart Set up
Load a simple moving average onto your Renko charts. In regards to the moving average period, select the same pip size of your renko charts.
For example, if you were looking at a 25 pips Renko chart, you can use a 25 period simple moving average (set to close). It is entirely upto the trader what period moving average they want to use. So it doesn’t matter whether you use a 25 period or a 50 period moving average.
For the Stochastics oscillator, we use a 5, 3, 3 setting with 80 and 20 determining the overbought and oversold levels.
The chart below shows the Renko trend and timing strategy set up, where we use a 25 pip fixed Renko box size, a 25 period moving average and a 5, 3, 3 Stochastics oscillator set up.
Renko Trend and Timing Strategy – Rules
For Short positions
- Price must be below the Simple moving average
- Wait for Stochastics to reach to 80 level and then crossover below 80
- Place a pending Sell order on the Renko closing price with stop loss at the most recent high (add a few pips if you’d like)
- Keep an open take profit and book partial profits when a next similar signal occurs. Alternatively, book partial profits when Stochastics rises from below 20
- Continue to add to positions and trail your stops to the most recent highs until you see an opposite signal
For Long positions
- Price must be above the Simple moving average
- Wait for Stochastics to reach to 20 level and then crossover above 20
- Place a pending Buy order on the Renko closing price with a stop loss at the most recent low
- Take partial profits when Stochs crossover above 80 or fall from 80
- Continue adding to positions until you see an opposite signal
The chart below depicts this trading strategy in action.
- The first short signal was triggered after price moved below 20 period simple moving average and then the stochastics moved down from 80 level
- A short order was placed with stops at the previous high
- Keeping this strategy at its simplest without any trailing stops and partial booking of profits, the system gave 740 pips profits until it triggered a buy signal
- With the buy signal triggered, the short trade is exited and a long position is taken
- The long position, to date triggered 160 pips of profits
As you can see from the above chart, the Renko trend and timing strategy is simple but robust. With enough practice time traders will gain a lot of confidence with this hassle/stress free trading strategy.
Note that this system works on the Closing price Renko charts, meaning that the more regular tick based MT4 Renko charts are not suited for this strategy.
Secondly you will need to have a pro subscription to Tradingview.com charts so you can view intraday Renko charts such as H1 or H4 or even M30. You could of course use the daily close Renko charts, but it would take a very long time both to wait for a signal and for holding a trade as well.