Renko Bar Based Trading System for ThinkorSwim

[RickK]

@rad14733 , sometimes, it seems, that it makes a difference in terms of entry "strength potential" if the 'ex' line on WAE is trending upwards or downwards. From an idea I saw on TradingView for the same indicator, I decided to make a modification to our TOS version. Below, for anyone who is interested, is the WAE indicator with the 'ex' line color.cyan when trending up and color.magenta when trending down.

Indicator link: https://tos.mx/SJMb535

https://imgur.com/a/978Jg2h

 

[rad14733]

@RickKennedy I have converted almost every indicator I use for trend color change... It's very helpful at times and can even help indicate chop... WAE is one of the few that I haven't changed as yet...

 

[pkcfc]

Hey guys I'm fairly new to Renko Charts but I was wondering why you use such a small tick range (e.g 2-5) it seems that these bars form within seconds and it seems way to fast to use in a trading scenario.

 

[rad14733]

Hey guys I'm fairly new to Renko Charts but I was wondering why you use such a small tick range (e.g 2-5) it seems that these bars form within seconds and it seems way to fast to use in a trading scenario.

Not when day trading options, which is what I devised this system to trade... Yes, trading options as though they are penny stocks... For faster moving options, just use ATR... With personal adjustments you can trade any security you desire... Lots of flexibility...

 

[pkcfc]

@rad14733 Wow, thank you I never even knew there was an ATR setting for Renko's. This definitely helps!

 

[Shooters_Gotta_Shoot]

Hey everyone, I have recently started using renko charts and have found some success with them. I've been solely using the popular Half Trend Scalper and the results are honestly great. Coming from tick charts and normal candlesticks, I'm finding that it is difficult to capture the tops or bottoms on renko charts. In my opinion, the pros outweighs the cons with renko charts because they weed out so many whipsaws. But I've been trying to figure out a way to get out earlier and capture a great move when it hits its top or bottom. I've seen people online lean towards the RSI and changing the settings to 7 or even 4 to speed it up to capitalize the tops and bottoms, but it still gives a lot of false signals it seems. I've read through this forum and haven't seen anyone really fall in love with an exit strategy when it comes to renko. The Half Trend Scalper is very good, but isn't perfect. Renko seems very underutilized in the trading community, and it's probably for the very reason I just described, but I would love to figure out a better way to sell. Would love to hear anyones thoughts or ideas about this topic.

 

[rad14733]

@Shooters_Gotta_Shoot RSI would definitely help, but you might miss out on some potential profits during profit taking pullbacks... I've had good luck using the IronRod_SMI_Histogram_Lower as well as the Zscore_Lower_Indicator, both of which I have tweaked for my own needs... I have actually added RSI OB/OS into my version of Zscore, as well as a few other tweaks...

 

[Shooters_Gotta_Shoot]

RSI would definitely help, but you might miss out on some potential profits during profit taking pullbacks... I've had good luck using the IronRod_SMI_Histogram_Lower as well as the Zscore_Lower_Indicator, both of which I have tweaked for my own needs... I have actually added RSI OB/OS into my version of Zscore, as well as a few other tweaks...

I tried implementing my selling strategy of the Zscore combined with the ADX and got the same results as the Half Trend Scalper...Zscore got me out too early resulting in hitting the top perfectly or selling for a loss on a slight pullback in which turned into a great run after I sold. I haven't heard of the IronRod SMI, would you mind sharing so I could see if it works for me?

 

[rad14733]

@Shooters_Gotta_Shoot The second script in THIS post is where I got the original code from that I modified... I'd need to go through line by line to find my tweaks but they aren't anything earth shattering...

 

[Shooters_Gotta_Shoot]

@Shooters_Gotta_Shoot The second script in THIS post is where I got the original code from that I modified... I'd need to go through line by line to find my tweaks but they aren't anything earth shattering...

Really appreciate it! Look like there are multiple versions to play with. I will let you know if I find the holy grail!

 

[Shooters_Gotta_Shoot]

@rad14733 I've been testing your strategy for the past couple of days now. When I first skimmed through your post, I thought you were using this setup for the underlying stock and it just didn't jive well with the SPY. But then I re-read the post because this is like the only Renko Strategy on this website and saw that you were using it on the actual options. I've been day trading / scalping SPY options and using the SPY chart as opposed to the actual options that I am actually trading. After a lot of frustration and realizing that the options aren't always going to react the same as the underlying stock...this strategy is a way better alternative. I coded it into strategy form so it is more robotic for me since I always find myself trying to stray from my own strategy (I think everyone does from time to time). Super hard to backtest since I'm always trying to get the first call/put OTM or ATM, but as I flipped through a few of the strikes I was using on Friday, I saw some very promising results.

Obviously no strategy is perfect and even while using Renko there will still be whipsaws (even though the whole point of Renko is to eliminate them). Trying to build a small account up is tough due to the limitations of once you spend your money, it is locked up for the day and won't be cleared till the next day. My only question for you / goal of mine is to figure out if there is a way to optimize what brick size to use based on how much the underlying stock is fluctuating. I think you are spot on with 1-5 bricks and 3 bricks seems to be a nice sweet spot at times, but also too aggressive at times. I hate using the ATR and leaving my brick size up to the fate of the world, but I feel like if there has to be a way to statistically measure fluctuations / volatility / price movement to determine what brick size for us to use.

Food for thought for the weekend! Looking forward to unleashing this beast on Monday!

 

[Chris77]

Hey everyone, I have recently started using renko charts and have found some success with them. I've been solely using the popular Half Trend Scalper and the results are honestly great. Coming from tick charts and normal candlesticks, I'm finding that it is difficult to capture the tops or bottoms on renko charts. In my opinion, the pros outweighs the cons with renko charts because they weed out so many whipsaws. But I've been trying to figure out a way to get out earlier and capture a great move when it hits its top or bottom. I've seen people online lean towards the RSI and changing the settings to 7 or even 4 to speed it up to capitalize the tops and bottoms, but it still gives a lot of false signals it seems. I've read through this forum and haven't seen anyone really fall in love with an exit strategy when it comes to renko. The Half Trend Scalper is very good, but isn't perfect. Renko seems very underutilized in the trading community, and it's probably for the very reason I just described, but I would love to figure out a better way to sell. Would love to hear anyones thoughts or ideas about this topic.

I have it open on my screen from time to time, I use it with ATR. I'm not super excited about it, I only check it from time to time...

 

[rad14733]

@Shooters_Gotta_Shoot Glad you grasped that I use this system to trade options like penny stocks... That's how I look at it... I did the penny stock thing again back when I started using TOS... But the itch to trade options instead was just too great... So I shifted over to options... I grew my account rapidly that way - until the market plunged earlier this year... I was setting new daily profit records almost every day until I cockily over-invested the closing before the plummet... Crippled my account and trying to claw back since... Using indicators on solid options can be very profitable... I should be using this system to trade NIO options as I'd be rich... I started trading NIO back when it was around $10.00 a share... Made and lost a lot through the volatility... I now have systems that could potentially make a lot of money just trading NIO...!!! Oh, did I mention I like NIO...???

I'm sure that with just a little effort we can come up with an ideal indicator combination for scalping options... It'll come together...

Anyway, good luck on Monday...!!!

 

[Shooters_Gotta_Shoot]

@rad14733 Well I tried the strategy today and worked fairly well! I started with a 5 brick size to minimize the quantity of trades, but since the SPY wasn't moving too much today I lowered the brick size to 3 by the end of the day and worked pretty well, but produced more dud trades. I wasn't using the Hull Moving Average that you use and remember you mentioning that it may eliminate some fake sells. I added it to my charts after I was done trading today and it actually would have kept me in a lot of trades instead of selling too early.

I just had a few questions after the strategy today...

1.) Do you use the hull moving average to confirm your buying and selling? I used the Waddah, Ray Bull, and Balance of Power to buy when they all went green and the current values are larger than the values from the previous brick, and waited to sell when the Waddah or RayBull turned red. Like I mentioned before, the Hull MA may of reduced bad trades, but wanted to see how you have been utilizing the Hull MA as of lately.

2.) On average, do you use a brick size of 3 more often than not? I like 3 a lot more than 5 when its working, but 3 did produce more bad trades, but could have been smoothed out by the Hull MA if utilized properly I think. I'm afraid to go any lower than 3 since I can't afford to take more trades than I am already taking, but I was just curious which brick size you have found more success with. A size of 1 or 2 seems insane to me, but if there is enough criteria to weed out the bad trades, then I would be willing to do so.

3.) Waddah vs RayBull? I sold whenever either one of these turned red, but it seemed that sometimes the price followed the Waddah more than RayBull at times and vis versa. Never seemed like the price action respected one over the other more often. It seemed very half and half, but maybe this is where the Hull MA comes into play.

Just curious to hear your thoughts about all this to see if we can make this strategy better and better!

 

[rad14733]

@Shooters_Gotta_Shoot Glad you had some limited success... It can take some time to figure out what works best for you...

1.) Yes, I do use the HMA as part of the trade confirmation process but it is not a primary indicator... It can be used to monitor trend change or crossover... Depends on the situation... If other indicators are ahead of the HMA I will take trades while HMA is still showing countertrend color... No rigid rule on this indicator...

2.) I used to trade using 2t bricks but as you discovered, you'll blow a lot of trades... I prefer the 3t - 5t range, or ATR except when it is skewed way too high for my comfort level... I've traded options that had ATR's in the 8t - 13t range and have had to switch to 5t max...

3.) As I mentioned elsewhere, I have reverted back to using the original WAE indicator that has all bars above the Zero line... But I replace the fixed deadZone setting with one of the following, preferring the second example... I am most apt to use the RBP for exit OR the WAE is the bar closes below the white "explosion" line or the deadZone line...

input atrAvgType = AverageType.WILDERS;
def deadZone = ATR(sensitivity, atrAvgType) * mult;

--OR--

def deadZone = WildersAverage(TrueRange(high, close, low), 100) * 3.7;

I hope I answered adequately... In all honesty, I'm currently testing different lower indicators, upper indicators, with Heikin Ashi or Renko Bars... But I do pull up this system for some trades at times and it still serves my purpose... I even reverted back to candlesticks for a short time but the price action gets my anxiety flared up and I blow too many trades out of angst so Heikin Ashi and/or Renko Bars have to be my go-to's at least for short timeframes...

I'd go into more detail regarding my current setup but I don't want to cloud the waters here in this topic... I have mentioned it elsewhere, however...

 

[Shooters_Gotta_Shoot]

@rad14733 Thank you so much for your help!

It seems thats the HMA may lag too much to bring a lot of value to the table. I guess it looks good visually, but can't rely on it to tell us anything RBP and BOP isn't telling us already.

I'm glad we are on the same page for brick size. I think below 3 is just crazy and need an algo to trade for you at that point. 3-5 seems like a sweet spot for my level of trading. It's nice to be able to go between 3 and 5 if you feel like things are getting a little crazy, slow it down with 5, and if you need to be faster switch to 3.

I implemented your ATR setting on the deadzone and really like it. It allows you to take more trades without worrying about if you are way off the reservation.

 

[Shooters_Gotta_Shoot]

@rad14733 Past couple of days have been successful, but not a good as I was hoping. I think my biggest problem is not knowing what brick size to use. Do you have any rule of thumb for how much an option cost to what brick size to use? Using a 3 or 5 brick size works very differently when the option costs $0.50 or $2.00.

Just wondering if you had a range of like if its $2+ then use a size of 5, or if it is less than $1 than use a size of 3? I know this is a million dollar answer, but I just feel like this is the biggest holdup with Renko.

 

[rad14733]

@rad14733 Past couple of days have been successful, but not a good as I was hoping. I think my biggest problem is not knowing what brick size to use. Do you have any rule of thumb for how much an option cost to what brick size to use? Using a 3 or 5 brick size works very differently when the option costs $0.50 or $2.00.

Just wondering if you had a range of like if its $2+ then use a size of 5, or if it is less than $1 than use a size of 3? I know this is a million dollar answer, but I just feel like this is the biggest holdup with Renko.

Your line of thinking is spot on... The smaller the option the smaller the tick size... For $0.50 I'd go with 2t and for $2.00 I'd go with 5t... It's a personal preference thing but I base my settings on how big of a swing the price takes on a full reversal... For a small option I'm not going to wait for a $0.10 swing before exiting... The only time I'd ride that out would be if the indicators are showing the swing as being a take-profit blip that I expect to recover and continue upward... It also depends on how volatile the underlying is and how fast the bricks are painting... I'll increase the tick size if I'm getting what I consider too many false reversals... It's a balancing act...

I'm not afraid to just set a profit limit and let the bricks continue on after I've got my profit... It can be too easy to get greedy and then be stuck trying to catch a falling knife... Wait for that one last brick and then BOOM you're down three bricks before indicators signal the reversal urgently enough and you can't get out quick enough and potentially take a loss instead of a profit...

 

[Shooters_Gotta_Shoot]

Your line of thinking is spot on... The smaller the option the smaller the tick size... For $0.50 I'd go with 2t and for $2.00 I'd go with 5t... It's a personal preference thing but I base my settings on how big of a swing the price takes on a full reversal... For a small option I'm not going to wait for a $0.10 swing before exiting... The only time I'd ride that out would be if the indicators are showing the swing as being a take-profit blip that I expect to recover and continue upward... It also depends on how volatile the underlying is and how fast the bricks are painting... I'll increase the tick size if I'm getting what I consider too many false reversals... It's a balancing act...

I'm not afraid to just set a profit limit and let the bricks continue on after I've got my profit... It can be too easy to get greedy and then be stuck trying to catch a falling knife... Wait for that one last brick and then BOOM you're down three bricks before indicators signal the reversal urgently enough and you can't get out quick enough and potentially take a loss instead of a profit...

Well I'm glad I'm in the right ballpark! It only makes sense because its really a percentage game of how big do I want my brick size to be compared to the price. Too high of a brick size...you might not getting any movement at all. Too low of a brick size...way too many false signals like you said.

Maybe it is this simple...

$0.50-$1.00 = 2t
$1.00-$1.50 = 3t
$1.50-$2.00 = 4t
$2.00+ = 5t
Anything less than $0.50 just isn't worth it unless you want to go with 1t maybe.

And I agree with the falling knife situation. No matter what chart you trade on you can get caught being greedy, but when the computer plots like 4 or 5 bricks instantly, that is a terrifying situation to be in. I changed my selling criteria from the Waddah turning red to when it gives a significant drop from the previous bar. Seems to work a little bit better and avoid more falling knives. The Balance of Power isn't doing much for me, I'm looking into other indicators that could be a solid replacement.

 

[rad14733]

I changed my selling criteria from the Waddah turning red to when it gives a significant drop from the previous bar. Seems to work a little bit better and avoid more falling knives. The Balance of Power isn't doing much for me, I'm looking into other indicators that could be a solid replacement.

I'm with you on the WAE, and BOP... Regardless of the indicator, I'm more than willing to exit if histogram bar size falls significantly... More time than not there won't be a rebound and I'm content taking available profit while it still exists...

As for alternatives to BOP, consider IronRod_SMI_Histogram_Lower or one of the Zscore Lower indicators... I currently have one setup that uses both mentioned as well as WAE that I am experimenting with... Another indicator I'm testing is the Volume_Oscillator lower indicator... I feel that I get more information from lower indicators with histograms than mere crossover oscillators...