Monday, June 29, 2009

The Renko Experiment

I read The Harrad Experiment by Robert H. Rimmer during my first year of college. A couple of my very best friends, one male and one female, read it at the same time. The three of us then went on to live out the fantasy experiment laid out in those pages over the course of the next decade of our lives. Some of the very best, some of the very worst days I have ever known. Looking back, we were so naive, but we were invincible, or so we convinced ourselves.

In any case, The Renko Experiment has nothing to do with The Harrad Experiment, so if you have landed here from Google expecting some coming-of-age titilation, sorry, we're into money now.

Starting above with a Renko chart of the SPX for the past week, some very clear trends shown, all tradable including the final swing up into today's close. Below, a close up of just today's trading:

Compare the above two Renko charts to the two candlestick charts of the SPX below. As with the Renko charts, the first one is a one week view, the second chart a one day view:

Zooming in on today, six blue "stay long" bars:

Open to close, staying long in sync with these signals generated about 1% on the unleveraged SPX or SPY. The SSO double-beta ETF gained about 2%. Near term in-the-money options rose about 30%

In my testing of Renko over the weekend, one of the standout performances was given by TZA, a triple-beta ETF emulating 3X the performance of the Russell 2000 index. I had this one on my screen all day and it didn't disappoint:

If you look at the right of the vertical dash line that goes the length of the chart, that area represents the trading in TZA for today, Monday. Here is a close-up:

There are two trades shown, a Buy at $22.51 and a Sell at $22.84. TZA closed today at 22.52. That is a gain of $0.33 on the first trade and a gain of $0.32 on the second trade. Total win is $0.65 or 2.8%

In summary, be careful what you let your kids read, especially if you sending them off to college where traditional rules of morality are subject to examination, skepticism and above all, experimentation.

As for Renko charts, first day was promising, with examination, skepticism and experimentation the order of the day.


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