Renko to Avoid the Chop

Since Christmas Eve the equity markets have been full of life, rising quickly back to prior break down levels. But as they arrived at those levels they have experienced a stall. But not just any stall. A bouncing choppy stall. What traders call a Chopfest, because both long and short entries get stopped out and your account gets chopped to pieces.

There are two ways to deal with this type of market activity. First, you can just close out all of the positions you bought at the end of the year and wait for it to end. Not much fun but a path to take. The second is to find ways to look through the Chopfest and smooth it out. Renko charts can help with that.

The Renko chart of the S&P 500 above acts as good illustration. A combination of a Japanese Candlestick chart and a Point and Figure chart, Renko charts only add a new ‘brick’ when price has moves a specific amount, in this case it is the Average True Range, ATR.

Since the ATR is a measure of volatility it takes out a lot of the chop and gives some clarity to the direction of price. Combine it with other indicators, like the momentum indicators in this chart and you can build a clearer case for continuing to hold your positions through the chop.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.