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Backtesting on Renko Charts
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Backtesting on Renko Charts

  #1 (permalink)
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Backtesting on Renko Charts

As noted in the "MC v7 Cool things" thread, MC now has Renko bars.

Now other platforms have had this and other more sophisticated bar types for a while and so have discovered the pitfalls with these types of bars. But being a MC user, I am unaware of these issues and have apparently very quickly fallen into some of them.

So, at the suggestion of BM and RM99, I have started a thread to discuss the pitfalls of using Renko bars on chart 1 and backtesting.

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  #2 (permalink)
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Doing a search of futures.io (formerly BMT), I have found the following resources on Renko bars and backtesting:

https://futures.io/traders-hideout/4936-renko-tick-backtesting.html
https://futures.io/ninjatrader-programming/4768-tip-backtesting-renko-charts.html
https://futures.io/traders-hideout/7427-what-best-trading-rules-using-renkos.html

Descriptions / information on Renko bars:
https://futures.io/traders-hideout/300-renko-bars-vs-range-bars.html
https://futures.io/ninjatrader/9198-what-difference-regular-renko-charts-median-renko-charts.html
https://futures.io/ninjatrader/9429-better-renko-charts.html
https://futures.io/elite-circle/4978-better-renko.html
https://futures.io/traders-hideout/6819-ode-renko.html

Lastly information on Renko strategies:
https://futures.io/ninjatrader/5564-renko-automated-trading.html


Last edited by diverdan; July 24th, 2011 at 12:52 AM. Reason: Additional URLs
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  #3 (permalink)
Fortitudo et Honor
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Most of the resources on futures.io (formerly BMT) in reference to Renko charts are for Ninja. Because we cannot backtest IOG and because the look inside function will not work, you're left to do as Big Mike stated and use multiple data streams.

The problem with renko is that the possible range of the next renko bar is 3 times the size of the bar increment.

So if you're using a trailing stop, then the increment of the trail must be at least 3 times the size of the bar.

additionally, if you don't use stops in increments of the bar, the backtest has no way of determining what happened during the bar....

When you compound the issue with the fact that renko's are not time based....then it becomes more of a challenge (i.e. the bar could continue in the direction of the last bar, up to a tick shy of creating a new bar, then reverse and go all the way back, nearly 3 bars worth just shy of creating a new bar in the opposite direction and then travel all the way back to the other end....there's no time limit).

What I have found is that renko bars "on average" penetrate approximately 40-45% of the bar increment. That is to say, if you use a trailing stop that has a trail the value of 3 bar increments.....on average (over many trades) you'll enjoy a 40% trail savings compared to simply using a fixed stop that's 2 bar increments.

These are the wicks and outside the plotted bar values that are not included historically.

You could use a 2 brick trail, but again, every once in a great while, the bar will advance, and then return all the way back and stop you out (thus something that seems like a long trend of continuous bricks....will stop you out infrequently unless you're using a 3 brick trail size).

In the end, tradestation is useless for renko strategies. It's really only useful for analysis and getting trend information (historically). You can use a renko modifier to show the wicks/tails, but that only updates live.

MC gives you an advantage of using multiple data streams, but even that takes some workarounds.

TS will probably never address the growing requests to supply renkos with tails. I saw from another thread where MC is aware that it's a popular request.

In my opinion, renko with tails is the cadillac of charting. You can glean the same information off range bars, but it's much more graphic friendly with renko (including the true highs and true lows).

In the end, the only REAL useful piece of advice I can give you when developing strategies on renko charts is to be sure that you forward test AT LEAST as much data as you've backtested, in order to verify potential pitfalls. Renko charts are usually VERY positively biased in backtests.

"A dumb man never learns. A smart man learns from his own failure and success. But a wise man learns from the failure and success of others."
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  #4 (permalink)
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You can backtest with IOG.

The problem with Renko bars, on MultiCharts or NinjaTrader, is a design problem. The open of the bar is not "true" in relation to the prior bar close.

You can get around this problem by adding a second dataseries to your strategy. 'data1' is the execution dataseries, like a 1-range bar for example, and 'data2' is your renko series for generating signals.

Send orders to data1 for fills, and data2 is just for signal generation.

It is not too difficult to implement this in MultiCharts. Just be prepared that your magic money-making renko strategy will be less magical after a more accurate test

Mike

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  #5 (permalink)
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Hi RM99

Thanks for the information. Have you made the switch to MC yet? According to Mike, seems that, whilst there may not be a killer argument for making the switch, the small things that MC does better than TS may be enough?

Cheers,

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  #6 (permalink)
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Big Mike View Post
Just be prepared that your magic money-making renko strategy will be less magical after a more accurate test

Mike

Thanks Mike

Looks like I'll be spending the weekend making the strategy less magical

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  #7 (permalink)
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Interesting remark from Aslan

From one of the threads above, Aslan stated:


Quoting 
Totally agree. I love that time is removed from the chart, but you have to be careful. I actually run a BetterRenko and time based at the same time. My signals come off the BR, but I watch the time based chart for trendlines and other patterns. For example, a BR removes a lot of noise, which is great for seeing structure, but it can also work against you if you do not see that time is ticking away during a consolidation pattern.

Note: Don't use WickedRenko, it is flawed, BetterRenko replaced it.

https://futures.io/traders-hideout/7427-what-best-trading-rules-using-renkos-2.html#post85442

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  #8 (permalink)
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Big Mike View Post
You can get around this problem by adding a second dataseries to your strategy. 'data1' is the execution dataseries, like a 1-range bar for example, and 'data2' is your renko series for generating signals.

Send orders to data1 for fills, and data2 is just for signal generation.

Hey Mike

If I adopt this approach, in your opinion will this remove / negate the need for BetterRenko?

Dan

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  #9 (permalink)
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diverdan View Post
Hey Mike

If I adopt this approach, in your opinion will this remove / negate the need for BetterRenko?

Dan

I've never looked at the BetterRenko code, but my understanding is that is (somehow) has a correct Open price in relation to the prior bar Close, which is the main backtesting "fault" of a traditional renko. Of course, that, and the wicks and tails to show more precisely the movement within the brick/bar.

That said, if you aren't using the wicks and tails to generate signals (High and Low in relation to Open and Close) then I believe adding the second dataseries should solve any other backtesting related "faults" with a traditional renko bar.

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
Help using the forum? Watch this video to learn general tips on using the site.

If you want
to support our community, become an Elite Member.

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  #10 (permalink)
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RM99 View Post
[....] use multiple data streams.

The problem with renko is that the possible range of the next renko bar is 3 times the size of the bar increment.

[...]

additionally, if you don't use stops in increments of the bar, the backtest has no way of determining what happened during the bar....

When you compound the issue with the fact that renko's are not time based....then it becomes more of a challenge (i.e. the bar could continue in the direction of the last bar, up to a tick shy of creating a new bar, then reverse and go all the way back, nearly 3 bars worth just shy of creating a new bar in the opposite direction and then travel all the way back to the other end....there's no time limit).

What I have found is that renko bars "on average" penetrate approximately 40-45% of the bar increment. That is to say, if you use a trailing stop that has a trail the value of 3 bar increments.....on average (over many trades) you'll enjoy a 40% trail savings compared to simply using a fixed stop that's 2 bar increments.

These are the wicks and outside the plotted bar values that are not included historically.

This question is just showing my ignorance on this subject matter, but I don't follow this. If I plot Renko bars in MultiCharts, each has the same range and the open is at most one "box size" away from the preceding close. Also when using "PlayBack" mode, I don't see this behaviour that a new bar can be three "box sizes" away from the preceding bar.

Or are you saying that real-time Renko charts have different 'plotting rules' than the one based on historical tick data?

Thanks for any insights,

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