Trader Education: The Renko and Ichimoku Method
Renko, like the Ichimoku Kinko Hyo system by Goichi Hosada, is one of the many traditional Japanese forms of analysis. What differentiates Renko from the more commonly known Japanese candlesticks is that time is not a factor. We also see the absence of wicks on all the Renko bricks, and that is because each brick represents a particular movement of price and any wicks that do form off of Renko bars are a rare event that usually marks a significant short or longterm trend change.
When we apply Renko charts with the Ichimoku system, we get a very clean, clear and simple way to analyze markets. A quick note about this: Not all software allows you to place the Ichimoku system on Renko charts, TradingView does. Some users may notice that I have not included all of the components of the Ichimoku System, and that is true. The only component that I have removed is the Conversion Line (Tenken-Sen). I have no real good reason to remove it other than it is a very fast moving average for a Renko chart and any live testing and back testing I have done utilizing the Conversion Line has been mostly moot. I have, however, kept the Base Line because of its strong relationship to the 50% Fibonacci level and the strength the signals provided with price break above or below the Base Line. Additionally, the Base Line continues to act as a strong support and resistance line.
There is really no difference between how I trade the Renko and Ichimoku setup than I would with traditional Japanese candlesticks and the Ichimoku system. The Lagging Span (Chikou Span) continues to be one of the most important components of the Ichimoku system using this setup. In fact, because Renko bricks are not as flippant and subject to the same types of unpredictability as candlesticks, the Lagging Span seems to be much more powerful confirmation tool. It also shows the same behavior that we observe in candlesticks, but with more precious and fewer whipsaws. Notice how often the Lagging Span will tread the bottom and top of the cloud (Kumo) as support and resistance. There does not appear to be as much of a consistency when the Lagging Span is near the Base Line, but more testing would need to be completed.
What is the Renko Ichimoku combination telling us Bitcoin?
First, we need to remember the principle of the Base Line: think of price attached to the Base Line by a rubber band, the further price moves away from the Base Line, the more probable and more violent the ‘snap’ back to that line. The article I just did on Bitcoin with Renko analysis points out the importance of the change of a Renko brick color. One thing I really didn’t capitalize on was the importance of the volume that is on that green Renko brick. It’s massive. It’s the third largest volume Renko brick ever. Which is important because that should be an accelerant for the proverbial rise to the moon. And the distance price is from the Base Line is well beyond the average true range that has existed since mid 2017, so there is a strong technical pullback warranted very soon. And the important thing about Renko bricks is that there is no time factor involved, so there will be no long consolidation range while the Base Line slowly creeps closer to the current price action. Expect a very probable 600-1000 rise.