A Renko Trading Strategy - Part 6

NYMEX:CL1!   Light Crude Oil Futures
Part 6: How to Incorporate a Stop/Loss Strategy

Incorporating stop-loss strategies into trading using Renko charts and options involves careful consideration of market dynamics, the specific characteristics of options trading, and the unique aspects of Renko charts. Here are some approaches tailored to this trading strategy:

1. Setting Stop Losses Based on Renko Chart Reversal

  • Renko Brick Reversals: Since Renko charts are designed to filter out minor price movements, a reversal (change in brick color) can be a significant indicator. For options trading, consider setting a stop-loss order if there's a reversal that contradicts your position. For instance, if trading calls based on an uptrend indicated by Renko charts, a stop-loss could be triggered by the appearance of a certain number (e.g., two or three) of consecutive red bricks, signaling a potential downtrend.
  • Percentage of Option Value: Determine a percentage loss of the option's value that you're willing to tolerate (e.g., 30-50% of the premium paid). This approach requires monitoring the option's value relative to market movements and Renko chart signals.

2. Volatility-Based Stop Losses

  • Average True Range (ATR) Adjustments: Although traditional Renko charts do not incorporate time or volume, you can use an additional indicator like the Average True Range (ATR) of the underlying futures contract to set volatility-adjusted stop losses. This method involves setting a stop loss at a point where the option's underlying asset moves against your position by an amount that is significant based on recent volatility, indicating the trend might not be as strong as anticipated.

3. Time-Based Exits

  • Option Time Decay: For options, time decay (theta) is an important consideration. You might set a time-based stop-loss strategy where positions are evaluated for potential exit if there hasn't been favorable movement within a certain timeframe, considering the decay's impact on your option's value, especially as it approaches expiration.

4. Technical and Fundamental Stop Losses

  • Renko Chart Patterns: If your Renko charts show pattern breakouts or breakdowns (e.g., failure of a breakout pattern you traded on), use these as a basis for stop-loss orders.
  • Fundamental News: For commodities like crude oil, fundamental news (e.g., geopolitical events, supply changes) can dramatically impact prices. If such events occur and are likely to adversely affect your position, consider them as triggers for your stop-loss strategy.

5. Dynamic Stop Losses

  • Adjust According to Market Conditions: As market conditions change, regularly review and adjust your stop-loss levels. This dynamic approach ensures that your strategy remains aligned with the current market environment and Renko chart developments.

6. Mental Stop Losses

  • Disciplined Execution: While physical stop-loss orders placed with a broker are automatic, mental stop losses rely on the trader's discipline to execute a trade when certain conditions are met. This approach allows for flexibility in response to market conditions but requires strict adherence to predetermined exit criteria to be effective.


Creating stop-loss strategies for options trading based on Renko charts involves a blend of technical analysis, understanding of options' characteristics, and disciplined risk management. By combining Renko chart reversals, volatility adjustments, time-based considerations, and both technical and fundamental factors, traders can develop a comprehensive stop-loss strategy that protects against undue losses while allowing room for the natural ebb and flow of the markets. Regular review and adjustment of these strategies in response to market changes are crucial for maintaining their effectiveness.

Part 7: Some Examples of Analysis


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