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As noted in the "MC v7 Cool things" thread, MC now has Renko bars.
Now other platforms have had this and other more sophisticated bar types for a while and so have discovered the pitfalls with these types of bars. But being a MC user, I am unaware of these issues and have apparently very quickly fallen into some of them.
So, at the suggestion of BM and RM99, I have started a thread to discuss the pitfalls of using Renko bars on chart 1 and backtesting.
Can you help answer these questions from other members on NexusFi?
I am working on a rule based strategy over the summer as a little side project. I have settled on a strategy based on Renko bars, but I'm running into problems backtesting it.
I can only seem to find 40 days of tick data (eSignal), …
All renko incarnations (NT Renko, MedianRenko, SBSRenko, WickedRenko) are unreliable for backtesting due to few issues. One of these issues is redrawing the "open" of the bar after the bar has formed.
Has anyone heard of Better Renko charts? In Ninja Trader we have Renko. Better Renko is used by Felton Trading and I would like to be able to apply it.
There is a new type of Renko bar in the elite download section called BetterRenko.
Why create yet another Renko bar type? Because they are all broken and have issues backtesting. There are lots of flavors: Renko, SbsRenko, MedianRenko, WickedRenko. …
Oh Renko how you show me direction.
Oh Renko you are nearly perfection.
You keep me from chop.
You keep me from slop.
I'll ride with you Renko until the trend end. :sarcastic:
Most of the resources on futures.io (formerly BMT) in reference to Renko charts are for Ninja. Because we cannot backtest IOG and because the look inside function will not work, you're left to do as Big Mike stated and use multiple data streams.
The problem with renko is that the possible range of the next renko bar is 3 times the size of the bar increment.
So if you're using a trailing stop, then the increment of the trail must be at least 3 times the size of the bar.
additionally, if you don't use stops in increments of the bar, the backtest has no way of determining what happened during the bar....
When you compound the issue with the fact that renko's are not time based....then it becomes more of a challenge (i.e. the bar could continue in the direction of the last bar, up to a tick shy of creating a new bar, then reverse and go all the way back, nearly 3 bars worth just shy of creating a new bar in the opposite direction and then travel all the way back to the other end....there's no time limit).
What I have found is that renko bars "on average" penetrate approximately 40-45% of the bar increment. That is to say, if you use a trailing stop that has a trail the value of 3 bar increments.....on average (over many trades) you'll enjoy a 40% trail savings compared to simply using a fixed stop that's 2 bar increments.
These are the wicks and outside the plotted bar values that are not included historically.
You could use a 2 brick trail, but again, every once in a great while, the bar will advance, and then return all the way back and stop you out (thus something that seems like a long trend of continuous bricks....will stop you out infrequently unless you're using a 3 brick trail size).
In the end, tradestation is useless for renko strategies. It's really only useful for analysis and getting trend information (historically). You can use a renko modifier to show the wicks/tails, but that only updates live.
MC gives you an advantage of using multiple data streams, but even that takes some workarounds.
TS will probably never address the growing requests to supply renkos with tails. I saw from another thread where MC is aware that it's a popular request.
In my opinion, renko with tails is the cadillac of charting. You can glean the same information off range bars, but it's much more graphic friendly with renko (including the true highs and true lows).
In the end, the only REAL useful piece of advice I can give you when developing strategies on renko charts is to be sure that you forward test AT LEAST as much data as you've backtested, in order to verify potential pitfalls. Renko charts are usually VERY positively biased in backtests.
"A dumb man never learns. A smart man learns from his own failure and success. But a wise man learns from the failure and success of others."
The problem with Renko bars, on MultiCharts or NinjaTrader, is a design problem. The open of the bar is not "true" in relation to the prior bar close.
You can get around this problem by adding a second dataseries to your strategy. 'data1' is the execution dataseries, like a 1-range bar for example, and 'data2' is your renko series for generating signals.
Send orders to data1 for fills, and data2 is just for signal generation.
It is not too difficult to implement this in MultiCharts. Just be prepared that your magic money-making renko strategy will be less magical after a more accurate test
Thanks for the information. Have you made the switch to MC yet? According to Mike, seems that, whilst there may not be a killer argument for making the switch, the small things that MC does better than TS may be enough?
Totally agree. I love that time is removed from the chart, but you have to be careful. I actually run a BetterRenko and time based at the same time. My signals come off the BR, but I watch the time based chart for trendlines and other patterns. For example, …
I've never looked at the BetterRenko code, but my understanding is that is (somehow) has a correct Open price in relation to the prior bar Close, which is the main backtesting "fault" of a traditional renko. Of course, that, and the wicks and tails to show more precisely the movement within the brick/bar.
That said, if you aren't using the wicks and tails to generate signals (High and Low in relation to Open and Close) then I believe adding the second dataseries should solve any other backtesting related "faults" with a traditional renko bar.
This question is just showing my ignorance on this subject matter, but I don't follow this. If I plot Renko bars in MultiCharts, each has the same range and the open is at most one "box size" away from the preceding close. Also when using "PlayBack" mode, I don't see this behaviour that a new bar can be three "box sizes" away from the preceding bar.
Or are you saying that real-time Renko charts have different 'plotting rules' than the one based on historical tick data?