Never let your profit turn into a loss. In forex trading, a few seconds might be enough for the market to move into the negative territory and wipe out all of the pips gained by you. As a trader, your number one focus after entering into a trade is to determine when to get out. If the position is losing money, you can use the traditional stop loss strategies.
However, suppose your trade is profitable. Seeing profits emerge in your trade is exciting. But the technical challenge is to recognize when to exit a profitable position before your profit turns into a loss. These challenges are real as many traders are unable to get out in time and protect their profit.
You need to learn how to detect the change in market sentiment at the micro level so that you can capture and protect the pips that you have made. Renko Charts can help you detect changes in the market sentiment at the micro level. Let’s discuss how Renko Charts are used by traders to detect market sentiment changes at the micro level.
A Renko Chart is made up of bricks. Renko is the Japanese word for a brick. When you will look at the chart, it will appear to be made of bricks. Hence, the name Renko!, Now, each brick represents a predetermined movement in the market whether up or down. If it is a predetermined up movement in the market, you add a brick in the up direction. The color of a bullish brick can be white, gray or green. Color doesn’t matter, you can choose any color you want for the bullish bricks.
Similarly when the price moves down by a predetermined amount, we add a new brick in the opposite direction that is usually colored red or black. You are free to select your own color. Each brick on the Renko Chart reveals information about the market sentiment at the various points in time. These bricks can be used by the trader as a way to identify the threats to the pips that have been gained so far in the market.
By setting these Renko Chart bricks to a small micro level price increment like 1 pip, a trader can get the earliest possible warning to the change in the market sentiment. This micro level of trading can be 1 minute or even less.
On a Renko Chart, a bullish renko pattern is recognizable as a sequence of bullish bricks colored green, white or gray. Similarly, a bearish renko pattern will be recognized as a descending series of black or red bricks. A general rule of thumb is to take three bricks in the reverse direction as the threshold. On the appearance of the fourth brick, exit half of the position and on the appearance of the fifth brick exit the market completely.
This way, you never lose your profit in the market. Renko Charts can be used for intra hour trading as well as intra day trading.