Last week (17th of November) I did an analysis of the ETHUSD pair using Renko bricks. A quick recap on Renko bricks for those who may not know about them before going forward:

  • Renko bricks do no involve time, only price.
  • Renko bricks form only after a set amount of price has moved. For instance, on this analysis on ETHUSD the size of a Renko brick is 5.00. So price has to move up 5 to fill a green Renko brick and price has to move down 5 to fill a red Renko Brick
  • When a Renko brick changes from Red to Green or Green to Red, this can be a good signal that a change in trend is happening, especially near important support/resistance levels.
  • Renko bricks filter out a lot of ‘noise’ that is common with regular candlesticks, you can also see structural levels of support and resistance much easier.

We focused on the level displaying a closed red Renko brick (#4 in the image below) last week. The common behavior of price with Renko bricks is that if there has been a series of consecutive bullish bricks and then the formation of a bearish brick, there is a high probability of price changing direction.

 

 

 

 

 

 

 

 

 

 

  1. Today, we see that price has decided to reject moving lower. When this happens on a Renko chart, you can expect a strong reaction to continue the previous trend. Price is also showing continued respect of the rising wedge. The thick black horizontal line represents a line of resistance that has been tested twice. Price continues to coil up, however, we do need to be careful of strong bearish signals forming: rising wedge and divergence.

2. This represents a trade opportunity for those wanting to trade this inner structure of the rising wedge. Rising wedges are inherently bearish and a sign of reversal. There is a case for bearish price action because of price being near the resistance line and at the top of the rising wedge. However, price likes to respect structure and we could very well see a bounce to the upside.

3. If price were to bounce and/or reach this area, we need to be vigilant. If price moves strongly above the resistance line and holds, we have a new support level. If it fails to break, there is a strong probability of price collapsing.

5. If the bottom of the wedge fails to hold price inside of it, we can expect some significant movement to the downside.

Trade ideas:

Bulls – there are two areas we want to watch for entries.

  1. #2 is a buy entry, but we only want to do this after we have seen 2 green Renko bricks as confirmation of a bounce off the bottom wedge line.
  2. Above #3 is our resistance line, we would want to place a limit buy 2 Renko bricks above the resistance line after a break of that line and a retest of it for support.

Bears – there are 3 areas we want to watch for entries.

  1. Ideally a good short is at the current Renko bars close, which is on the upper line of the rising wedge, this is the best short opportunity.
  2. Our second short best short opportunity is going to be two red bricks below the lower wedge line.
  3. And finally, our third best short entry is at #3. This is not an ideal entry right away. Like the bull entry for this area, we want everyone else to fight it out at that level of resistance. If price reaches that area, a good place to have a safe short is only on the failed breakout above resistance.