Brick Count Indicator & Short-term investment plan
The brick is an important property of Renko charts. I have created few indicators on Renko charts introduced in my book Profitable Trading with Renko charts.
Isn’t it logical that if the number of bullish bricks over a look-back period is higher than the number of bearish bricks, it is then a bullish sign?
Similarly, if bearish bricks are more it is a sign of weakness.
This simple logic made me create brick indicators on Renko chart. To great extent, it is like XO indicators on Point & Figure charts that I have introduced in my first book Trading the Markets the Point & Figure way.
But there is a particularly important difference when we use brick indicators on Renko charts which many traders may not have realised.
Before I explain that, let me explain Brick count counter.
I recommend 40-brick period to plot this indicator on chats. It counts number of bullish and bearish bricks over last 40 bricks and plot it below the chart. See below image.
The two lines in the lower panel show the number of bullish bricks and the number of bearish bricks, respectively. Black line shows number of bullish bricks over last 40-period and red line shows number of bearish bricks.
Indicator in above image shows that number of bullish bricks were 31 and bearish bricks were 9. We can read that when we put the cursor on the brick.
It is very logical to interpret that when the black line is above the red line, it means that the number of bullish bricks is greater than the number of bearish bricks. A bullish phase would produce more bullish bricks than bearish bricks, while a bearish phase should produce more bearish bricks than bullish bricks.
When difference between both lines is wide, it shows a strong trend.
When red line is higher than the black line and difference between both lines is more, it shows a strong and bearish trend. Similarly, when black line is higher than the red line and difference between both the lines is wide, it shows a strong bearish trend.
At crossover point, number of bullish and bearish are equal.
When difference between both lines is narrow, it shows that the trend is not strong or there is a phase of consolidation.
Below is a current chart of APOLLOHOSP.
40-brick brick count indicator tells us about the pattern over last 40-bricks. Bullish and bearish bricks are equal in above chart, observe the pattern in the above chart.
Neither bulls are strong nor bears have control. When difference between both the lines is narrow, it shows that trend is not strong.
What is a key feature of this indicator?
There is one key feature of this indicator which is not easily available with indicators on any type of charts. As discussed earlier, 40-brick Brick count indicator shows number of bullish bricks and bearish bricks.
Because of nature of Renko charts, the total of both the lines will always be 40 when we are plotting a 40- brick indicator. Over the last 40-bricks, total of bullish and bearish bricks will always be 40, right?
So, how this information is useful?
Because of this key feature, this indicator become objective and very useful from practical trading perspective.
Because the total of both lines will always be equal to indicator parameter reading, both lines in the indicator makes a specific shape. They are always placed opposite to each other.
Indicator makes three types of shapes that can help us in defining state of the trend:
When bullish line is above bearish line, the trend is bullish. When bearish line is above the bullish line, trend is bearish.
Below are the shapes for bullish phase:
Below are the shapes for bearish phase:
Above shapes also depends on the difference between the lines. If difference is wide, horizontal lines would indicate strong trend. When difference between the lines is narrow, horizontal lines would indicate a sideways market.
For a 40-brick indicator, maximum possible reading of any line in the indicator is 40, and minimum possible reading is 0.
I can now define wide gap or narrow gap. If reading is
25 – 15 or more: Phase is bullish What is 25 – 15?
Total of both lines will be 40, right? So, if bullish line reading is 25, bearish line reading would be 15. If bearish line reading is 25, bullish line reading would be 15. Clear?
Let us define the phase of market using the indicator reading and shapes. See below table for Bullish readings:
When difference between lines is more than 25 – 15, meaning bullish line reading is more than 25 and shape of indicator lines are bullish (bullish line is rising or both lines are horizontal) market phase is bullish. Higher the reading better it is.
When difference between lines is more than 15 – 25, meaning bearish line reading is more than 25 and shape of indicator lines are bearish (bearish line is falling or both lines are horizontal) market phase is bearish.
This also helps us to define the sideways or neutral market phase. See below table
Above things makes the market trend objective for us on Renko chart.
You can study the basics of Renko charts and unique price patterns on Insight.
Click here to view the Renko course on Insight.
More videos will soon get uploaded in above course. Let us keep it simple to begin with and just focus on the Swing breakout patterns.
Click here to view video explaining Swing breakout patterns.
The courses on Insight are free and Login details on Insight, Opstra and TradePoint Web are the same.
Short-term Investment plan:
Universe: Nifty 500
Brick-value: 1% Entry criteria:
Bullish swing breakout when phase is Bullish (Partial quantity)
Bullish swing breakout when phase is Bullish & Strong or Very bullish & Strong or Akharee Rasta. (Full quantity)
5-bricks Exit criteria:
Price goes below the initial stop of 5-bricks or Bearish Swing breakout or when brick line reading turns sideways.
Initial risk is 5 bricks because 5 bricks going against the trend will change the shape of the phase over last 40 bricks.
When you open the Renko chart you can get to know about the current reading of indicators by putting the cursor at recent bricks, check above rules for entry then.
Alternatively, you can run the scanner for Bullish and Bearish Swing breakouts in Renko scanner and check the brick count indicator readings.
Below are the current chart examples. We get four candidates in F&O universe when we run the scanner today:
Bullish swing breakout: Yes
Brick readings: 31 – 9 (Bullish & String trend)
Shape: Flat (Qualified)
Bullish swing breakout: Yes (Bullish One-back as well)
Brick readings: 26 – 14 (Bullish)
Shape: Flat (Qualified)
Status: Qualified (Partial quantity). Stop is more affordable due to One-back.
Bullish swing breakout: Yes Brick readings: 13 – 27 (Bearish)
Status: Not qualified
Bullish swing breakout: Yes (Also bullish Two-back)
Brick readings: 20 – 20 (Sideways)
Status: Not qualified
Got the idea? Once practiced, it would not take much time to take a decision to trade based on this approach. The system is objective in nature.
Can we run this for intraday or short-term trades?
I need to add couple of more rules for that. Observe this for next few days, we will discuss this further. You can also use Renko Extensions in above systems.
Click here to learn Renko Extensions: