The economic aftermath of the global COVID spread has intensified the commodities exchange risk aversion in manners not recorded since the international financial crisis. The stock market has called off by more than 30%; implied oil & equity volatilities have jumped to the crisis positions. Also, credit opens out on non-investment category debt have opened up steeply as traders minimize risks.

As a result, most investors are now using chart patterns and technical indicators to succeed in these financial markets. While technical indicators assess momentum using statistics, the second option, chart patterns, analyzes the markets’ psychology based on its price action. However, active traders mostly find it hard to master chart patterns because of their subjective nature.

Chart Patterns Definition

Chart patterns refer to price patterns appearing on charts. While these value charts may look stray at the initial peep, investors use several patterns to analyze market sentiment. These eye-openers are linked with other technical analysis forms, like candlestick patterns or technical indicators used to make practical trading conclusions. The market has several chart patterns, but only a few have emerged as the best ones. The top five chart patterns in trading include the Candlestick chart, Heiken-Ashi chart, Renko chart, Line Chart, and Bar chart. However, this post will focus on the Renko Chart. Let’s get started!

Renko Charts Definition

Asset price movements help you to quickly track trends, and this is what Renko charts do. But what are these charts? Renko is a type of chart that rips apart small price fluctuations allowing traders to concentrate on the ‘major’ trend. These charts are the products of Renko bricks. Note that a Renko brick is created when the price moves a specific amount. These bricks turn green or white when the value goes up and red or black when the value goes down. As a result, the bricks allow you to quickly identify the price’s current movement direction. Using the Renko charts correctly, you can eliminate the price direction uncertainty and incorporate them into a buying and selling trend strategy.

How Renko Charts Function

Renko charts are the results of bricks that shift upwards or downwards from the preceding brick at a forty-five-degree gradient. Note that Renko bricks don’t appear beside one another. When using the Renko chart, you’re the one who uses the chart to determine the brick volume, which then helps you determine when the new brick will be formed.

Renko Charts Versus Candlestick Charts

Candlestick charts concentrate on small price information and timeframe than the Renko charts. Another candlestick forms at each time frame, without considering how high or low the price shifts. For instance, on a daily candlestick-related chart, supposing at least a single transaction occurred, another candle will be created on that same day, featuring its open, close, bottommost, and uppermost prices.

On the other hand, Renko charts don’t display each buying and selling day’s open, close, bottommost, and uppermost prices. Also, Renko charts don’t create another brick at each time break. It forms another brick only when a bottommost movement edge is surpassed or attained.

Heikin Ashi charts gather an average of the latest price shifts, while Renko charts concentrate on the significant trend. Besides this, Heikin Ashi uses previous candle values to create average prices that seem smoother than the conventional candlesticks.

Conclusion

For all chart types or trading strategies, losing investments fall under the natural sections of buying and selling. However, as an investor, you can always control your risk level and manage the amount of capital you’re ready to part with whenever you lose trades.

Specifically, filling the Renko charts with stop-loss orders can help you exit the market at a pre-decided position if the asset doesn’t follow the expected path. Another element to figure out is to put only a section of the capital you have into sole trade. This step can help minimize massive loss probability if that sole trade fails to go as expected.