Thank you for your explanation. Could you put in volume chart? I know you don't care for volume, but I do and some other readers do.
At home today due to icy roads in NC.....At the close today, TBT was closing higher, and TLT dropped lower. I'll allow the 126 level- under the recent swing low- to act as a stop-loss for this recent entry. In Feb, TLT had a more substantial decline than it has had during the past year uptrending period. Technically, it could still be considered to be in an uptrend, as it has continued to make higher swing lows, and proceed to make higher highs from those pullback levels. However, the decline was pretty sharp and substantial- and the recent price action trying to go higher may fail. In this trade, I will consider a close under the prior low of $126.00 . Renko charts are designed to ignore price noise-- and they can be set to ignore the intraday volatility- and focus on the open -closing values, or they can be set to record the hi-lo- of price swings that exceed the ATR. A new brick forms only on price movement that exceed the present brick range values- In this daily chart example, The 100 period ATR value is $1.30. In order for a red brick to show, price will have to exceed $1.30 below the low of the present brick or $127.40. In order for a new higher brick to form, price will have to exceed $131.30. For 2 red bricks to develop, price would have to drop to 126.10. By dropping down to faster time frames, or slower time frames- and modifying the hi-lo or Close settings- one can focus on the substance of the movements- and not as much minor volatility noise-. this may be beneficial in periods of market choppiness - or to simply stay within the trade for a longer holding period instead of reacting.
Hi Swift- You are correct- I do not consider volume -in my trading- as a qualifying reason to enter or leave a trade. It is at best-for me - secondary- and often after the fact- confirmation when the HERD has become aware and entered into the trade en masse- I think it is more important to view the uncluttered price action in terms of the overall trend direction- and ideally be one step ahead of the herd. Ideally- Waiting for a volume confirmation can be similar to waiting for a moving average crossover- or an indicator to cross the 0 line. Of course, I am not always early and ahead as some of my trades are already well underway-.....LOL! I think the primary indicator I employ is TREND direction- and price relative to a fast moving average to assist in defining that trend action. If you find Volume to be beneficial in your decision to enter or to exit, certainly continue to employ it- and i can include it in some of my charts- It's just one additional attempt to get some type of confirmation that the reason for your trade is valid , because an increasing number of other traders are viewing it that way- And if the trade does not work out- you have the knowledge that you- and an increasing number of other traders also felt the trade was worth taking. Volume can be right on- or can fizzle out. I think volume is best viewed when it shows up as a series of smaller bullish volume days prior to an upmove- Extremely large volumes show the excitement of the larger crowd jumping into a trade- it is best to be a step ahead of that group, so you can sell to the late comers, because the news is already known- As with all things in employing TA- you may find it has relevance and is a benefit in your trading- However, i would suggest that you consider what would have been the benefit if you waited for a volume confirmation- or if you had reason to enter the trade ahead of volume confirmation? I would suggest that whether it is volume- or any other indicator type of reading- one should do some real back testing to determine if the indicator gives validity or actually improves results- or whether it is somewhat delayed in allowing you to enter- or exit the trade. There will be moments in our trading, that a 'signal' will prove to be on the spot and valid- volume, indicator, oscillator- etc. Like many things we like to rely on in employing Technical Analysis-charting- we give meaning to what we think is relevant to our approach. Seldom do we actually do the exercise of challenging our belief that such and such an indicator is valid repeatedly- and gives us a better edge or probability in making our trades- With every thing we can 'ADD' to qualify whether we should make a trade- we tend to lose sight of what does the price and trend tell us? In my opinion- every trader should start with a clean slate. Keep it as simple as possible- A price chart- bars or candles- a couple of moving averages- and pause there and exhaust the relevant information- Is price uptrending, downtrending, or in a sideways consolidation? Next, look at the same information- but on a larger time frame chart- Is the weekly trend moving higher- Uptrend intact? Does the daily trend entry work with the weekly -predominant trend? If not- it is a higher risk trade and should be taken as a more tactical - take early profits or losses- DB Phoenix has a good thread here with a download available - What we often fail to recognize- is that if we are a trader that mostly views price on a daily chart- Do we understand where we are from the view of the larger weekly chart movements? I often fail to employ this larger viewpoint in my decision to take a trade or not- Can't see the forest for the trees...... Before we add volume, MACD, RSI, Stochastic-ETC- there is simply price movements- We should learn to study Price movements in detail on different time frames to start to get a better bigger picture. The big volume move we may think we see on a daily chart may mean little on the larger -and more important- weekly chart. Exhaust one's study of trend and price within the trend before adding extraneous inputs. I can & will include volume on some future charts of trades I take- but I find it simply clutters the chart- It is simply another indicator of what occurs at the moment- and does not really foretell that a trade will move higher for multiple days- or weeks- or months- Very often these larger trends occur despite low volumes- or divergences with indicators- Yes, eventually the divergence will come true and price will react - The multiple days of higher moves on lower volumes will eventually sell-off- or the divergence in the indicator will eventually be correct - but days, weeks, months- can go by while price action follows it's own lead in spite of all the ways we hope to harness our understanding of why it does what it does and try to extend that to what it will do in the future- Additionally, while i am not a likely convert ....I am willing to study the relevance of any indicator - volume included- on stocks or ETF's - The criteria is give me a stock, the time frame, and we will review it's price movements over a 1-2-3 year period and also give me the entry criteria-and exit criteria if applicable- where the excess volume (How much?) is needed to take an entry- or exit- I think the results will likely show that there will be periods where high volume do indeed capture the beginnings of larger up moves- and then there will be periods where the high volumes fail to get the necessary follow-through- As with any indicator- it needs to give you a trading edge-above 50-50- All too often, we look back and find that such and such a movement occurred right before the big move we missed. Conversely, we fail to recognize that such and such a movement occurred, but the move failed. This is a necessary indicator analysis and needs to be done over multiple trades or longer time periods to see if it actually gives a valid edge. Don't add unneeded complexity is my Opinion- Every variable that is added to the equation removes one from the equation- What does price tell you? What is the trend? What time frame? But, i enjoy the study and challenge of indicator relevance- which is why I no longer use them - They do work occaisionally- but also do fail occaisionally-You see what you want to see- Why include them if they blind you to the more important trend/ price action?
Hi Swift- I have TLT closing at $128.45 . The 2 hour chart gives a top brick value of $129.75 and the ATR value per each brick is $.75. Therefore, a 2 brick decline from the top brick value is -$1.50 . Once price goes below $129.75 - $1.50- a new red brick should be generated . $128.25 on the hi-lo chart- with the low at $128.40 - Keep in mind that the active brick top value is $129.75- Each brick has a $.75 value- so the bottom of that present brick is $129.00. When price drops below that $129.00 value by an additional $.75 a new red brick should be generated. (Hope that doesn't go that far! LOL!) Keep in mind, this is the faster 2 hour chart - The daily chart would have a larger box value- What is interesting about RENKO charts, is they don't move every day- only when price exceeds the ATR value of that time frame- If one uses the CLOSE setting, extra wide volatility outside of the open-close range is ignored as simply market noise- and not worth reacting to unless it pushes the close price below that level. Reduces the need for the Tums-antacid in minor volatile moves.