Advantages and Disadvantages of Renko Charts
Trading with the Renko indicator has advantages and some disadvantages.
The advantages of the Renko indicator
Among the advantages of this indicator are:
Ease in highlighting trends, support and resistance levels in the stock market
Simplicity in reading and visual identification of current trends and their weakening, as well as the rapid identification of reversal points, unlike traditional Japanese candlestick charts.
This indicator filters out periods of market inactivity and bricks only form when there are moves
The elimination of market noise (such as wicks, false breakouts and price volatility), and the ability for the trader to focus on the most important trends
A much simpler and particularly effective technical analysis for novice traders, who therefore have the possibility of improving certain aspects of their trading (such as patience or impulsiveness)
The possibility for the trader to place stop-losses and calculate his risk.
The disadvantages of the Renko indicator
Among the disadvantages of the Renko chart, let us mention that:
Renko indicator bricks do not provide traders with much information (like open price, high price, low price or close price) unlike Japanese candlestick charts by example
The difficulty for the trader to determine the size of a brick that is suitable for different trading styles
Renko indicator charts can send “false signals” with the rapid change in color of the bricks following violent movements in the market. To cover this disadvantage, it is recommended to resort to stop-losses or to combine the renko indicator with other indicators.
What is the Renko indicator and how to use it in trading in a nutshell
L’Renko indicator, which is composed of bricks whose size depends on the unit of price variation, allows to quickly identify the market trend by filtering noise or micro-movements. This indicator can be used alone, or in combination with other indicators like Japanese candlesticks to confirm trends.
You can use the Renko indicator to trade indices, commodities and forex via MT4 available on the IG platform.