49. Renko and Point & Figure Charts
1. What are Renko and Point & Figure Charts?
Renko Charts
Time-independent charts that use fixed-size bricks to show price movement and filter out noise.
Point & Figure
Also time-independent; uses X’s and O’s in columns to show price direction (up/down) with box sizes and reversal thresholds.
2. Components
Renko
Bricks, Brick Size (fixed or ATR-based), Direction (up/down)
P&F
Columns of Xs (rising) and Os (falling), Box Size, Reversal Count (e.g., 3-box reversal)
3. Pros and Cons
Renko
Removes noise, great for spotting trends
Lags in fast markets, not suitable for tight scalping
P&F
Clear entry/exit points, helps visualize supply/demand zones
Complex to set up, not intuitive for beginners
4. Purpose in Stock Analysis
Renko
To identify smooth trends and filter out market noise.
P&F
To highlight support/resistance and trend reversals based on price action alone.
5. How Are They Calculated/Derived?
Renko
A new brick forms only when price moves by at least brick size from the previous brick's close.
P&F
X or O added for each box size moved in one direction; a new column starts after a reversal threshold is hit.
6. When Should Traders Use Them?
Renko
For trend-following systems, swing trading, smoothing signals
P&F
For breakout traders, pattern recognition (triple top/bottom, catapults, etc.)
7. Limitations and Risks
Renko
May miss rapid reversals; depends heavily on brick size
P&F
Doesn’t show volume or time; requires careful setting of box size and reversal amount
8. Common Mistakes
Renko
Using inappropriate brick size; misreading reversals without confirmation
P&F
Misinterpreting columns or patterns without understanding rules (e.g., 3-box reversal logic)
9. Best Combinations with Other Tools
Renko
Moving averages, RSI, MACD, Bollinger Bands
P&F
Price objectives, classical chart patterns, trendlines, support/resistance
10. Pro vs. Beginner Interpretation
Renko
Use to ride trends, adjust brick size based on volatility, use as a trend filter
May overreact to each brick, use default settings without calibration
P&F
Use for pattern-based trading, support/resistance analysis, conservative breakout entries
Confused by notation, treat P&F as candlestick equivalent
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