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The only parameter that must be determined for the
renko chart is the size of the brick itself. The larger the size, the
less movement a chart will show, but there will be larger stops on the
positions. If you use too small of a brick size, you will have too
much sensitivity to price movement, and the reason for using the renko
chart is lost. While there is no perfect setting, traders will often
use 1% of the price of the stock as the setting on daily renko charts.
Traders need to experiment themselves and see which number offers you
the best view of the trend.
Renko bricks are drawn at 45 degree angles from each other
and are based on the closing price per period. If you have a brick
setting of 5 rupees and the share price closes 23 rupees higher, four
bricks would be added to the chart. Another brick would only be added
if you were to have a new close another two points higher. For there
to be a brick created in the opposite direction, you would need prices
to reverse and close at least two times the size of the brick. If
price does not do this, then any correction will be ignored by the
chart.
Support is, by definition, an area where prices failed to go
lower and rallied due to the basic fact that there were more willing
buyers at that price than there were sellers. On the flipside of this,
we have Resistance. This is by definition an area where prices reached
a ceiling where they could not rise further due to the fact that there
were, at this point, a greater number of willing sellers than buyers.
These areas of Support and Resistance become valid points where we as
traders can expect changes in the direction of price, thus creating
trading opportunities to buy and sell. We talked about this in last
week's article. Some traders will buy near Support and sell near
Resistance. Some traders prefer to undertake the "Breakout" technique,
which is more of a momentum-based approach and involves buying as
prices make new highs, or selling as prices make new lows. there are
so many books on trading and most traders start the learning process
by reading the trading books, yet the vast majority of traders and
investors fail when it comes to achieving their financial goals.
For the most part, the books say the same thing and teach the same
conventional concepts. Specifically, most of what those books teach is
conventional technical analysis including indicators and oscillators
such as Stochastics, Mac-D, moving
averages and so on. Conventional technical analysis is a lagging
school of thought that leads to high risk, low reward, and low
probability trading and investing. All indicators are simply a
derivative of price meaning they lag price. By the time they tell you
to buy or sell, the low risk, high reward opportunity has passed. They
have you buying after a rally in price and sell after price has
already declined.
When you trade and you are continually getting a pattern of
the same unwanted, negative results, then you are likely reacting to
"programming." Programming is analogous to the programming of a
computer in that you can be said to download behavior patterns from
parents and other authority figures as you grew up. Programming is
also termed learning. When you have a novel experience, either painful
or positive, your brain encodes everything that you see, hear, feel,
taste and smell. This encoding happens as your brain releases hormones
and neurotransmitters that actually create a memory stamp of the
situations. The positive experiences memories are often quite helpful
as they are then connected to emotional states like determination,
confidence, inspiration, and passion, which hone the trader's focus on
what matters most. However, negative and painful experiences work on
the system in the opposite fashion; they are connected to emotional
states like depression, anger, fear, guilt, doubt and greed, which are
uncomfortable, thereby draining and distracting the trader's focus.
You must also remember to find and evaluate any negative
factors that could affect our trade's chances for success. You should
always do this before you trade since you will often ignore any
negatives once we are in the trade. No one likes to be wrong and when
money is in a position, we are likely to downplay or rationalize
reasons to exit for a loss. The key to a low risk and high potential
reward of any Supply or Demand zone is
in the strength of the imbalance between the buyers and sellers. The
more out-of-balance the willingness to buy or sell at a price point,
then the greater the move away from that price point will be. price
action, as well as the reaction to news, but Some traders are becoming
incrementally less bullish, and indeed more bearish, as we approach
our aforementioned price target of S&P 1360. The most vicious rallies
occur in the context of a bear market and that could prove true once
again. The incremental improvement in the stateside economy and the
labor uptick in the tech sector a dark cloud will remain on the
horizon until such time that we digest the imbalances and address the
root causes caused a generation that long lived beyond its means.
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