We want to elaborate a little further the renko exercise we started today. First of all we fine tune the time frame and take 60 minutes as a base and not the daily price action.
Secondly we add two indicators in order to have a better idea of trends and the strength of that trend.
These two indicators were found on the stocktiger.com site. We have the commodity channel index and the stop-and-reverse indicator. Or CCI and SAR.
About the CCI we find on the Stockchartssite:
Developed by Donald Lambert, the Commodity Channel Index (CCI) was designed to identify cyclical turns in commodities. The assumption behind the indicator is that commodities (or stocks or bonds) move in cycles, with highs and lows coming at periodic intervals. Lambert recommended using 1/3 of a complete cycle (low to low or high to high) as a time frame for the CCI. (Note: Determination of the cycle's length is independent of the CCI.) If the cycle runs 60 days (a low about every 60 days), then a 20-day CCI would be recommended. For the purpose of this example, a 20-day CCI is used.
And on the Investopedia site:
Like most oscillators, the CCI was developed to determine overbought and oversold levels. The CCI does this by measuring the relation between price and a moving average (MA), or, more specifically, normal deviations from that average. The actual CCI calculation, shown below, illustrates how this measurement is made.
The one prerequisite to calculating the CCI is determining a time interval, which plays a key role in enhancing the accuracy of the CCI. Since it's trying to predict a cycle using moving averages, the more attuned the moving average amounts (days averaged) are to the cycle, the more accurate the average will be. This is true for most oscillators. So, although most traders use the default setting of 20 as the time interval for the CCI calculation, a more accurate time interval reduces the occurrence of false signals.
The one prerequisite to calculating the CCI is determining a time interval, which plays a key role in enhancing the accuracy of the CCI. Since it's trying to predict a cycle using moving averages, the more attuned the moving average amounts (days averaged) are to the cycle, the more accurate the average will be. This is true for most oscillators. So, although most traders use the default setting of 20 as the time interval for the CCI calculation, a more accurate time interval reduces the occurrence of false signals.
The result is the chart on top.
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