Renko and range bars flatter scalping

[Shadow Trader]

Renko bricks and range bars filter out time, and they filter out small moves. Each brick forms only when price moves a set distance, for example 2 pips. The chart looks like a clean staircase.

It's tempting for scalpers. Trends look obvious. Reversals are marked by a change in brick color. Entry rules seem crisp.

The problem is what's hidden. The chart doesn't show how long each brick took to form, nor what happened in between. A 2-pip brick might form in 5 seconds or in 5 minutes. A reversal brick appears only after price moves back by the brick size, which means signals come late, and the price at the signal isn't the price on the brick.

Backtests on Renko data are famously overoptimistic. The software often assumes execution at the brick's close, which isn't an available price. In a real market, the order is sent after the brick completes, at the then-current bid or ask, which can be several ticks away.

Some traders use these charts for reading structure and execute separately based on live prices. That's a sensible split, as long as the live price is what determines the fill and the stop.

There's also a version of the problem in how range bars are built from tick data. A range bar of 2 pips can close at 1.99 pips because of the way the first tick beyond the range is assigned, and different platforms handle this differently, so the same settings on two platforms can generate different bars.

Has Renko trading in live conditions matched what the chart seemed to promise?

[Amanhasnoname]

I spent a few months trading off three pip Renko on EURUSD and the gap between the chart and my account was hard to look at. The bricks made every trend look like a staircase you could just walk up, and the backtest in my software was showing a profit factor well above two. Live, it was barely above one, and some weeks below.

The killer was exactly what you describe with the reversal brick. By the time the opposite coloured brick printed, price had already moved the full brick size against me plus whatever it did in the gap before my order arrived. On a quiet afternoon that was fine, but in the London open the real fill was often a pip or more worse than the brick suggested.

Where I still use them is for reading structure on a second screen. I keep a normal one minute chart for the actual entry and stop, so the decision is still made on a price I could really get. That combination has been far more honest.