What are the 5 most important elements in developing a winning forex trading system which uses renko charts? Well first we have to identify how to create a winning forex trading system.We will then apply this information to help us create a winning renko charts forex trading strategy.

Each trading method should combine the following 5 essential elements.

1. Accuracy 2. Reward to Risk Ratio (Reward/Risk) 3. Expectancy 4. Position Size 5. Account Equity

Accuracy is the percentage of times we win our trades. If we placed 10 trades and win 6 trades and lose 4 trade, our accuracy is 60%.

The Reward to Risk Ratio compares how much you win per trade compared to how much you lose per trade.

If we risk $50 to make $100, our reward is $100.Our Reward to Risk Ratio is $100/$50 or simply a 2 to 1 Reward/Risk Ratio.

Expectancy represents how often you are able to place a trade, or opportunity. If you place 10 forex trades per month with your system, your annual expectancy is 120.

If your forex trading system allows you to enter 15 trades per day x 20 trading days per month x 12 months per year then your annual expectancy is 15 x 20 x 12 = 3,600.

How many lots you trade is determined by position sizing. We define our risk by using appropriate lot size and stop losses.The popular method is to risk 1% to 2% equity per trade.

The size of your account or account balance refers to your account equity. The previous 4 elements must take into consideration your account balance. A good forex trading strategy will incorporate all 5 of these important components.

Let’s apply these 5 principles to a renko charts trading system.

Almost every new forex trader dreams of 100% accuracy. But let’s be realistic here OK? I think too many market participants focus on just this one variable. They continue to search for the “holy grail” system in an effort to improve their accuracy.

For our example let’s just say we win 15 out of every 20 trades, or 75% accuracy.

In this example, we will use a simple 1 to 1 Reward to Risk Ratio while we develop our Renko trading system. If we risk $40, our winners will be $40.

We will start with a $5,000 account size and risk 1% per trade. We will trade 5 days per week and place 2 trades each day. This is equal to 40 trades per month. Our Account Equity is $5,000 and our Position Size has been defined as 1% risk per trade. Our opportunity, or expectancy to trade, is 40 trades per month.

I know I can place 2 trades per day scalping or swing trading. This would probably take 1 hour of our time each day. I will start by looking at Renko charts with smaller Renko bars such as 5 pip or 10 pip Renko bars.

We should look to risk 3 to 5 Renko bars to gain 3 to 5 Renko bars. Remember our 1 to 1 Reward to Risk Ratio?

Let’s do the math together:

1% Risk per Trade = 1% x $4,000 Account Equity = $40 Risk Per Trade. The Reward is also $40.

If we risk 2 trades per day x 5 days per week x 4 weeks per month = we have a total of 40 trades. A 60% accuracy x 40 trades produces 24 winning trades and 16 losing trades.

30 winning trades x $200 Reward = $6,000 in winning trades. 10 losing trades is 10 x -$200 or -$2,000 total.

$6,000 + (-2,000) = +4,000.

This is how you use the 5 key elements to a good trading system and apply it to developing a Renko trading system.

Tom Grennell is a forex trading system developer. He shares his passion for the forex markets via his detailed writings and recommendations. His favorite ForexRenko Charts FX Trading System can be found at Forex Renko Charts