Your number one priority as a trader should be to protect your profit and stop it from turning into a loss. You should always keep this in your mind that the forex market is pretty notorious for taking u-turns within seconds and wiping out all your unrealized profit. After entering into a trade, you need to know when it is time to get out and make an exit. Getting out of a losing position is not difficult. If you have been following the usual money management rules and had placed a stop loss at the time of entry, you will be out as soon as your trade starts going into a loss.
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.
Renko Charts can help you in determining when it is best time to exit a trade. These charts are used to detect the micro level changes that are happening in the trend. So, what is a Renko Chart? 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.
And in case, the price moves down by that predetermined amount, a new brick in the opposite direction is added to the chart. For a bearish brick the color can be red or black or whatever you like to choose. These bricks are very important as they tell you about the changes in the market sentiment at the micro level.
The predetermined amount selection depends on the trader. However, it is important to choose a very small predetermined movement in the market if you are interested in detecting the micro level changes in the market. The best is to choose small increments like 1 pip. With this small increment, whenever the market moves by this much amount, a new brick will be added to the Renko Chart.
A bullish pattern on the renko chart will appear as a series of white, grey or green bricks moving in the up direction. In the same way, a bearish pattern on the renko chart will appear as a series of red or black bricks moving down. When this pattern reverses, it is time to get alert! On the appearance of the fourth brick in the reverse direction, exit half of your position. And when the fifth brick appears exit the remaining half. This is the zero tolerance approach to taking profit in the market that avoids turning profit into a loss! Renko charts are also very helpful in trend trading! Discover a very simple Renko Trading System that is very easy to master and does not use any indicator!