The most frequent question I field about Renko Charts is: what box size should I use? In this article I will explain why the only honest answer I can give is “It depends.”
But first, just to ensure this article will make sense, let me briefly explain how to work Renko letters. Renko’s cards use a “flexible” candle or box size, which you determine when you load the gauge on your cards.
As the price rises its designated number of pips, a new blue candle (bullish) will form. However, if a new candle opens (say the box size is 10 pips) and then the price drops 20 pips, a new red candle (bearish) will close. This is because the price should move 10 pips or above the last close or below the last opening in order for a new box to appear and close in your charts.
This is what makes Renko charts so appealing to many traders … the lack of locks and the lack of countless candles that fail to go anywhere but that cause their various indicators to give off a Mixed variety of buying and selling signals, none of which have any validity.
Understanding How the Renko candles form and close then gives rise to our FAQ: What size of box works best when trading the Renko letters?
As mentioned above, the only honest answer is “it depends” and what depends upon is what Type of forex trader is using Renko charts.
Some traders are best suited to be long-term traders. They tend to focus on hourly charts or 4 hours and watch for new trends to develop by jumping on once said trend is spotted and hanging on time that they can afford a maximum number of pips.
These types of merchants should use larger box configurations, such as 25 or 30 pips. If the price goes up 25 pips and form a new box, it should move down 50 pips to open a new box in the opposite direction. If you are familiar with trading pairs like EUR / USD or GBP / USD, you will find that large price reversals like these do not occur as often. Since a trend is set in one direction, this trend will usually continue by 100-200 pips. Using a large box setting such as 25 or 30 will eliminate the counters signals that you can get by using a 1 hour or 4 hour chart (the signs that cause you to exit an early trade, before another big move toward you ).
Other traders are more attracted to scalping and the kind of quick profits you can make in a 5-20 pip move. Using a 3 or 4 pip box size configuration, these traders are in prime position to see every mini-trend as it forms and are able to buy and sell countless times anytime during trading sessions in London and NY, 20 pips in profit each time.
When I answer the question “which box size should I use?” My answer will always ask the trader to perform a little self-analysis and determine if they are a long-term trader or a scalper. Once I know the answer to that question, I can give them a more specific answer than “it depends.”