輕原油期貨教育
A Renko Trading Strategy with Multiple Indicators (Update 3)
An update from the last summary: Stating the obvious but the recurring pattern did not play out.
This was a painful past couple of days but some realizations that I will walk through here for anyone who may be on a similar journey or realizations.
“Buy high and sell low” or “buy support and sell resistance” are simple words to speak, to walk through in back testing, but, in the heat of the moment with live data and markets unfolding in ways you weren’t expecting make these phrases an near impossible accomplishment.
As for the chart setup, I’ve with the following for the Renko WTI/CL chart:
Wednesday and Thursday had me watching the Renko charts waiting for an opportunity to go short (remember, my trading style is to buy either Calls or Puts as near to the money as possible and at least 3 to 4 months out). From the patterns I saw on the Renko, I firmly believed that the market was ready to sell off and I wanted to be in. As an aside, I cap my losses at 10% of the price I pay for the option.
In my losses this week, I realized that my strategies for every period of time that I’ve tried to trade had basically been a breakout trader. It wasn’t that I made a definitive statement of “Hey, my methodology is that of a breakout trader” but more like “Hey, I need to see confirmation of the price movement before I enter”. The problem is that the confirmation I was looking for was well after price had started moving and, as I looked at it, it was what could be classified as a breakout. And it was in my 3rd loss for the week, that I realized what I was doing wasn’t working. Sure, I could find points in time where it would have seemed to work but not this week. As closed out my 3rd loss, I read back through some items I had highlighted in the “Pivot Boss” book referenced earlier and in it found the pages were I had marked up the callout that you have to buy at support and sell into resistance if your going to succeed. It seem intuitive but in reality, it goes completely against my nature while trying to find an entry point with live data flying by.
By now, if you’ve read this far, you may have picked out some items that resonate with you or you may be finding this as a serious source of entertainment :D
For the discussion that continues, you’ll need to reference the previous article I wrote to see the specific charts before the price action on Thursday. The following link will give you view of how price played out.
The red rectangle outline on the chart is where I was looking for price to repeat a similar pattern noted in the related article. How simple (and unrealistic) could this be. What played out was a price movement that I didn’t know how to handle and took me some time to figure out where to get in. As price continued to go up, I realized this was where I would usually just try to get in and then, I would get in at a intra-day high, have price pull back and 10-20% of my option value hit and I’d be out just to watch the market reverse. So, on this day, I resolved myself not to make a trade unless I could figure out this “buy support and sell resistance” thing. In my resolve, I agreed to some points:
The next big decision I had to make was the timeframe for the candle chart itself. After much experimentation and debate with myself, I landed with the following:
What do I use for triggers and how to I decide where to look? The following chart is a bit of an eye chart but you get the idea. With the 3 camarilla pivots plus a year pivot, you can see the various levels. While it may seem like a confused mess, there is some method to the madness.
So, why mess with the Renko charts then? Fair enough of a question; I believe that the Renko chart setup will filter noise out of the view and provide a cleaner view of support and resistance lines due to the nature of its makeup. If you follow along with any of this in your own charts, you will begin to see that the pivots begin to form identifiable lines of support and resistance in the Renko chart. And, back to the point that the Renko setup I have with the specific indicators and their settings seem to provide a good path toward confirmation of trends and positions.
Another key issue I was struggling with was how to correlate the Renko chart with the candle chart. This is where I came up with the 5-minute chart which, after thinking about it, I realized that the 5-minute chart would reconcile nicely with the 15-minute Renko chart. If you look at how Renko charts are printed, they will print on the time frame that you set so, if a brick prints, it should do so on a :15-minute boundary. And, the 5-minute candle will correlate to it. The next chart shows the Renko with the 1hr candle side-by-side with the same rectangle. The rectangle on the 1hr is a reasonable estimate but squarely in the middle is an interesting candle formation that happens to be near the daily S5 and the weekly R1.
I looked at this for awhile in real-time and thought, how do you really decide to make this trade? It seems like price has moved further from the trigger before you have the nerve to pull the trigger on the trade. Plus, if you look at the DEMA on the Renko at this time, it’s still set bearish with 20 above the 12 and the -DI was still swapped above the +DI. All things I’ve used in the past and now causing paralysis in pulling the trigger in a “buy at support” trade.
The next is the same chart setup but I’ve switched to the 5 minute view and have adjusted the red rectangle in the candle chart a little.
The candle chart shows the boundary of the lowest red brick, the one red brick to the left and the two green bricks to the right. In this price action, candle on the one hour chart (engulfing is corroborated by the extended wick of the green brick that is the first reversed color in the down move. However, with the DEMA swapped bearish, what would lead you to look to buy on this. There are valid cases where price continues down from the one green brick. This is where the importance of the camarilla pivots along with the 5 minute chart come in.
With the engulfing candle on the 1-hour chart and the green brick on the Renko, what I should have done is use the 5-minute chart with the various pivots to find support and candle patterns to enter the market long. This would have been fulfilling the mantra of “Buy Support; Sell Resistance”.
The following chart zooms in to both the Renko and the 5-minute candle in hopes to show details of how to get from potential triggers to confirmations and physical entries with tighter reins on the stops to guard more on the ‘Hope this will work’ strategy.
By using the 15-minute Renko and the 5-minute chart, I can now see exactly what’s going on in the Renko bricks to get a better feel of what the market is doing. The blue double arrow on the Renko correlates with the 5-minute candle. With the first green brick being a trigger, then the key is to look at what is going on once that brick prints to see how price behaves around the Camarilla pivots.
The green dashed line is the time that the first green brick printed (committed, good to go). So, what is important is to now watch the price to find a setup to enter. Or we see the market push through the support of the camarilla pivots that are in close proximity and begin the search for an entry short.
The chart below is zoomed in even more on the candle chart with the daily Camarilla S4 which, from a daily context, is the last level of support before more sellers hop in and drive price lower. I’ve outlined this pivot in a green rectangle and here you can see price action and find some interesting setups. I’ve put some black arrows at some of the more interesting candles and those which are probably some type of reversal patters of 2 or 3 in nature.
I’ll end this here but have more in my notes that I’ll include in a future update.
This was a painful past couple of days but some realizations that I will walk through here for anyone who may be on a similar journey or realizations.
“Buy high and sell low” or “buy support and sell resistance” are simple words to speak, to walk through in back testing, but, in the heat of the moment with live data and markets unfolding in ways you weren’t expecting make these phrases an near impossible accomplishment.
As for the chart setup, I’ve with the following for the Renko WTI/CL chart:
- 25 tick block size and a 15-minute timeframe (more on this later)
- DEMA at 12 and 20
- MA at 20 with a 9 period (or block in case of Renko) WMA
- Stoch of 5,3,3 and 25,3,3
- DMI of 5,5
- Bull Bear Power at 25 (this is new and seems to provide good insights)
Wednesday and Thursday had me watching the Renko charts waiting for an opportunity to go short (remember, my trading style is to buy either Calls or Puts as near to the money as possible and at least 3 to 4 months out). From the patterns I saw on the Renko, I firmly believed that the market was ready to sell off and I wanted to be in. As an aside, I cap my losses at 10% of the price I pay for the option.
In my losses this week, I realized that my strategies for every period of time that I’ve tried to trade had basically been a breakout trader. It wasn’t that I made a definitive statement of “Hey, my methodology is that of a breakout trader” but more like “Hey, I need to see confirmation of the price movement before I enter”. The problem is that the confirmation I was looking for was well after price had started moving and, as I looked at it, it was what could be classified as a breakout. And it was in my 3rd loss for the week, that I realized what I was doing wasn’t working. Sure, I could find points in time where it would have seemed to work but not this week. As closed out my 3rd loss, I read back through some items I had highlighted in the “Pivot Boss” book referenced earlier and in it found the pages were I had marked up the callout that you have to buy at support and sell into resistance if your going to succeed. It seem intuitive but in reality, it goes completely against my nature while trying to find an entry point with live data flying by.
By now, if you’ve read this far, you may have picked out some items that resonate with you or you may be finding this as a serious source of entertainment :D
For the discussion that continues, you’ll need to reference the previous article I wrote to see the specific charts before the price action on Thursday. The following link will give you view of how price played out.
The red rectangle outline on the chart is where I was looking for price to repeat a similar pattern noted in the related article. How simple (and unrealistic) could this be. What played out was a price movement that I didn’t know how to handle and took me some time to figure out where to get in. As price continued to go up, I realized this was where I would usually just try to get in and then, I would get in at a intra-day high, have price pull back and 10-20% of my option value hit and I’d be out just to watch the market reverse. So, on this day, I resolved myself not to make a trade unless I could figure out this “buy support and sell resistance” thing. In my resolve, I agreed to some points:
- I will only buy at support and will sell into resistance: (the hardest concept known to man, not in understanding but execution)
- The key must be in the Camarilla Pivots so use them and the system that is outlined in the book. Or, as close as you can with how you want to trade.
- Renko chart setting will stay at 25 ticks for a block size and 15 minutes for a timeframe. What does this mean for Renko in TV? It means that price of a 25 tick increment must be held for 15 minutes before the block is committed or printed.
- Because volume profile and camarilla pivots are not a natural fit on the Renko charts, I’ll create a candle chart side-by-side to the Renko chart and then place all of these indicators on it. Additionally, all of the mark-ups I do for projecting the volume area on the chart and the opening range will be done on the candle chart
- The Renko chart will continue to have the indicators I track on it but they will be for confirmation and helping to form an opinion of the market and nothing to do with entry or exit. Remember, I want to buy support and sell resistance and not breakouts.
- I wanted to have multiple periods of levels on my candle chart so I included 3 sets of camarilla, a daily, weekly, and monthly set of levels.
The next big decision I had to make was the timeframe for the candle chart itself. After much experimentation and debate with myself, I landed with the following:
- Start with an hourly chart. The first general notion of entry and if at support or resistance will come from the hourly chart.
- I will continue with my volume area and opening range markup but it will be for a weekly timeframe. Meaning that the volume profile indicator is set to weekly and I use the first 5 hours of the week to set the opening range. From these markups I’ll create an opinion of the coming week and a trading plan based on what I see. Then, I’ll let price movement between the camarilla pivots prove out my opinion or lead me to adjust it.
- Once I find a potential trigger, I will switch the 1hr candle chart to a 5 minute candle chart and look for candle setups to trigger the actual trade.
What do I use for triggers and how to I decide where to look? The following chart is a bit of an eye chart but you get the idea. With the 3 camarilla pivots plus a year pivot, you can see the various levels. While it may seem like a confused mess, there is some method to the madness.
- The Camarilla pivots in TV allow you to color code the levels plus set the size or pixel width of the lines of the levels. For all periods, I set the pivot to black, R1/S1 and R2/S2 to purple and then based on the book’s recommendation, R3/S4 to red, R4/S3 to green, and R5/S5 to blue. For the daily, week, monthly, and yearly pivots, I set their pixel width to 1px, 2px, 3px, and 4px respectively. This is how I get a visual clue on what timeframe price is approaching (by the width) and the type of triggers or market behavior I should be looking for based on the color.
- I will use the weekly, monthly, and hourly pivots to look for price levels of support or resistance. It will be at these levels that I’ll look for price action to provide insight as to what the market wants to do with the level (there is a good discussion in the “Pivot Boss” book on identifying candle patterns that distills a lot of complexities of endless chapters of concepts into a few simple ones in one chapter).
- Once I see some type of candle pattern on the 1 hour chart that could indicate a trigger to enter, I change it to a 5 minute chart to find a pattern in the price movement of the next candle to make the entry. In theory, this should provide me with an entry at support; don’t wait for a confirmation via a breakout.
So, why mess with the Renko charts then? Fair enough of a question; I believe that the Renko chart setup will filter noise out of the view and provide a cleaner view of support and resistance lines due to the nature of its makeup. If you follow along with any of this in your own charts, you will begin to see that the pivots begin to form identifiable lines of support and resistance in the Renko chart. And, back to the point that the Renko setup I have with the specific indicators and their settings seem to provide a good path toward confirmation of trends and positions.
Another key issue I was struggling with was how to correlate the Renko chart with the candle chart. This is where I came up with the 5-minute chart which, after thinking about it, I realized that the 5-minute chart would reconcile nicely with the 15-minute Renko chart. If you look at how Renko charts are printed, they will print on the time frame that you set so, if a brick prints, it should do so on a :15-minute boundary. And, the 5-minute candle will correlate to it. The next chart shows the Renko with the 1hr candle side-by-side with the same rectangle. The rectangle on the 1hr is a reasonable estimate but squarely in the middle is an interesting candle formation that happens to be near the daily S5 and the weekly R1.
I looked at this for awhile in real-time and thought, how do you really decide to make this trade? It seems like price has moved further from the trigger before you have the nerve to pull the trigger on the trade. Plus, if you look at the DEMA on the Renko at this time, it’s still set bearish with 20 above the 12 and the -DI was still swapped above the +DI. All things I’ve used in the past and now causing paralysis in pulling the trigger in a “buy at support” trade.
The next is the same chart setup but I’ve switched to the 5 minute view and have adjusted the red rectangle in the candle chart a little.
The candle chart shows the boundary of the lowest red brick, the one red brick to the left and the two green bricks to the right. In this price action, candle on the one hour chart (engulfing is corroborated by the extended wick of the green brick that is the first reversed color in the down move. However, with the DEMA swapped bearish, what would lead you to look to buy on this. There are valid cases where price continues down from the one green brick. This is where the importance of the camarilla pivots along with the 5 minute chart come in.
With the engulfing candle on the 1-hour chart and the green brick on the Renko, what I should have done is use the 5-minute chart with the various pivots to find support and candle patterns to enter the market long. This would have been fulfilling the mantra of “Buy Support; Sell Resistance”.
The following chart zooms in to both the Renko and the 5-minute candle in hopes to show details of how to get from potential triggers to confirmations and physical entries with tighter reins on the stops to guard more on the ‘Hope this will work’ strategy.
By using the 15-minute Renko and the 5-minute chart, I can now see exactly what’s going on in the Renko bricks to get a better feel of what the market is doing. The blue double arrow on the Renko correlates with the 5-minute candle. With the first green brick being a trigger, then the key is to look at what is going on once that brick prints to see how price behaves around the Camarilla pivots.
The green dashed line is the time that the first green brick printed (committed, good to go). So, what is important is to now watch the price to find a setup to enter. Or we see the market push through the support of the camarilla pivots that are in close proximity and begin the search for an entry short.
The chart below is zoomed in even more on the candle chart with the daily Camarilla S4 which, from a daily context, is the last level of support before more sellers hop in and drive price lower. I’ve outlined this pivot in a green rectangle and here you can see price action and find some interesting setups. I’ve put some black arrows at some of the more interesting candles and those which are probably some type of reversal patters of 2 or 3 in nature.
I’ll end this here but have more in my notes that I’ll include in a future update.
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