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so i heard of a renko that uses the the atr to form the bars. heard good things about it. this is how tradingview runs theirs. ive been meaning to look into it a bit more but havnt yet.
It’s a misguide attempt. Then another guy attempted to fix it by changing how atr bar get drawn. Basically the idea sounds good but it’s a flaunt idea.
Renko bars represent a type of compression but in the process you lose important information. They are similar to moving averaging in the way they reduce noise. While moving averages suffer from lag, Renko bars suffer from uncertainty. In general, non time based bars can be effective when trading with tighter profits and stops. Renkos may be useful when combined with other types of analysis but probably suffer from too many issues if used in isolation.
I was just thinking that ATR-based (dynamically updating based on the ATR) Range and Renko bars sounded interesting (unfortunately I don't know how to try them in Ninja)
I heard there is another type as well that use ATR only to do the initial calibration of the brick size or range.
But I'm more interested is seeing how effectively a dynamic atr bar can help avoid trading in quiet markets.
here you can see what I mean
unfortunately my SC trial is over and so is my extension, so I can't try them out.
Could you please elaborate and educate us. Would seem that back testing let say Renko bars would be simple if entry was just change of bar colors. For discussion sake. But you differ ????
Yes I significantly differ in opinion on this point. Here is the key issue: Renko Bars, Line Breaks, Kagni, Point and Figure, and any other exotic bar type all have one thing in common that cause issues for backtesting.... They remove the extreme negative hits. So there is no concept of the noise. It is this very noise that is required to accurately run a simulation and determine fills. You are essentially taking a a series of lets say 10 price levels (4 down, and 6 up) and then saying all we want to see is just the open and close, ignor the rest. So here is what it looks like in reality.
Data series in linear order:
2000.00
1999.75
1999.5
1999.25
1999.00
1999.25
1999.5
1999.75
2000.00
2000.25
Now with an exotic bar type, all you will see is just the open at 2000.00 and the close at 2000.25. There is no concept at all of the 4 tick drop that occurs immediately after the open but prior to the close. This part is hidden from the exotic bar chart and thus hidden from the back-tester.
So this harms you in application 3 ways.
1. Entry fills: So in this example, using the data I provided, you want to go long when you see a green bar get formed and you want to enter immediately. Most HLOC back-testers won't just fill you on the open and be done. They will also typically check the low if you are going long, or the high if you are going short to see if you hit your stop right off the bat. Some traders use larger time series so any backtester will always need to check against the extremes (high or Low) to see if you got stopped out immediately. For most retail traders this happens often because most retail traders use the mentality of having very tight stops and very large profit targets which almost never works.
2. Moving along in the trade: Now assume that this sequence above wasn't in the entry but in the second bar, and assume that the stop loss was at 3 ticks. The backtester would see the open at 2000.00 and the close at 2000.25 and that is all. Everything looks good... No stop to hit here... Except in reality there were 4 ticks below the open of that bar that would have certainly triggered a 3 tick stop immediately, but the exotic bar type once again tricked the backtester by hiding the high and low.
3. Exiting: Exiting can be the difference between making 1 to 3 ticks profits and losing 1 to 3 ticks via a stop loss. Using the same example data on the exit, you will see that the back-tester only has two data points to work with. 2000.00 and 2000.25 (the Open and close). So if this is your exit bar it has to fill you on one of these two price levels. It completely ignores and misses the extreme downside in this bar with the 4 tick move down that occurs right after the open. So whether you would have made a profit on the exit or a loss can come down to the back-tester being able to accurately read these few hidden ticks.
I hope this example helps to caution you enough to avoid using these exotic bars for testing. If you are shooting for a larger profit target and larger stop loss then you will likely overstate your results by 25% to 50%. If you are scalping aiming for 1 to 3 ticks profit against 1 to 3 ticks for a stop loss, you will overstate your results by 7 figures. And that is no exaggeration either. I have had a few different algo strategies with renko, and line breaks that destroyed backtesters and could rack up 7 figures in just a few months.... virtually never losing.
What you can do instead is use these exotic bar types as an indicator to give you some sense of direction, but you will always need to allow your testing tools to see the HLOC of real bars. Or if you want even more accuracy, you can run your simulation against a 1 tick time series and use the actual bid / ask price levels to determine fills.
Bets of luck!
Ian
In the analytical world there is no such thing as art, there is only the science you know and the science you don't know. Characterizing the science you don't know as "art" is a fools game.