2018issue C0412-17
Modified Renko charts as a filter for fake breakouts
Fixed-time candlesticks can generate more false buy and sell signals when price stays inside a small range. A modified Renko chart hid most of those ranges on EURUSD and framed a likely fake resistance break on the German DAX. TradersWeek editorial reading treats the brick chart as a filter for those breaks, not as a cleaner picture of the same candle-based trade.
- Fixed-time candlestick charts can generate more false buy and sell signals when price stays inside a small range, because those small moves also feed moving averages and other derived indicators.
- A modified Renko brick uses the next bar's true open and draws a wick only on the opposite side of the brick's direction, while virtual bricks still have no real trade prices and no wicks.
- An up or down reversal on the modified Renko chart needs at least a double brick, and a failed double brick raises the next continuation to a three-brick move so unused double-brick series do not stretch averages and indicators.
- TradersWeek editorial reading: treat the time-free Renko chart as a filter that makes candidate fake breaks of support and resistance easier to falsify, not as a cleaner picture of the same candle-based trade.
Brick charts and fake breaks
The archive set a modified Renko chart next to fixed-time candlesticks and then inspected a break of resistance as a candidate fake breakout. Breakout confirmation was applied at Support and resistance after the brick chart had reduced small ranges.
False signals in a small range
Fixed-time candlestick charts can generate more false buy and sell signals when price stays inside a small range, because those small moves also feed moving averages and other derived indicators.
How a modified Renko brick is built
A standard Renko brick is added only after price exceeds the prior brick by a set pip size. Gaps larger than that brick size are filled with virtual bricks that can distort backtests that enter on the next bar open.
A modified Renko brick uses the next bar's true open and draws a wick only on the opposite side of the brick's direction. Virtual bricks still have no real trade prices and no wicks.
An up or down reversal on the modified Renko chart requires at least a double brick. If that double brick does not continue, the next continuation needs a three-brick move so unused double-brick series do not stretch averages and indicators.
A compact EURUSD path
A four-pip modified Renko chart of EURUSD from 13 to 14 October hid most of the small ranges visible on a 15-minute candlestick chart and presented a more compact view of the same price path.
A likely fake resistance break
A break through resistance inside a flat range, or a break through support to lower prices, can be treated as a candidate fake breakout if it looks consistent with professionals forcing stops in order to build the opposite position.
On a 32-point modified Renko chart of the German DAX from mid-June to mid-August 2017, a long-term top on 20 June 2017 was followed by a smaller zigzag labeled wave A into the 200-bar simple moving average and a reaction labeled wave B. The archive used that sequence as a worked example of a likely fake resistance break.
All readings on this track · 14 readings
- 2007Renko brick construction and breakout rules
- 2014Modified Renko brick size from tick inputs
- 2014Renko brick increment and open construction
- 2014Modified renko construction with RSI bands and a trend filter
- 2014Construction checklist for a brick-chart crossover and same-session breakout
- 2015Optimizing virtual bar size as a trend filter
- 2015Constructing Renko energy bands so support and resistance arrive as pre-marked leans
- 2018Five-rule entries and exits with Elliott waves and Renko bricks
- 2018Modified Renko charts as a filter for fake breakouts
- 2018V-Trade reversal, retrace, and continuation rules
- 2018A finished impulse, a Fibonacci target, and a reversing Renko brick as one test
- 2019Brick sampling changes what a volatility envelope can show
- 2019A consecutive Renko brick count as a mechanical entry-exit procedure
- 2019Renko brick scale as a falsifiable trend hypothesis