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Renko Charts

Renko charts are a chart type that only measures price movement. The word renko is derived from the Japanese word “renga” which means “bricks”. Not so coincidentally, renko charts are constructed from a series of bricks whose creation is determined by fluctuations in price. The concept of renko bars is very straightforward. First, the size of the bricks is pre-determined by the user. Once price moves more than the user defined “brick size” either above or below the most recent brick, a new brick is added to the chart.

It is important to note that new bricks are only added when price movements completely “fill” the predetermined “brick size”. Prices may exceed the values of the previous brick (either above or below), however a new brick will not be formed until the price movement is large enough. For example, let’s say the brick size is set to 2 points and the last brick covers prices of $52 to $54. The new brick won’t be formed until prices close either at or above $56 or at or below $50. If price closes above $56, for example $57; the new brick must still stop at $56.

There are two rules regarding brick placement:

  1. Bricks will always have their corners touching.
  2. There can never be more than one brick in any one vertical column.

PLEASE NOTE RENKO CHARTS ARE PRICE SENSITIVE NOT TIME SENSITIVE

Traders who use Renko charts typically do so because they are easy to use and interpret. They are also different than a typical candlestick chart because they filter out all other variables besides price movement. There are many uses for Renko Charts. Some of the more popular are; discovering basic support and resistance levels, breakouts, and generating signals with additional indicators.

When Trading with Renko Charts A lot of the noise inherent in regular time based charts is eradicated. So, if you trade with Renko charts, spotting divergence and trend reversals is a lot easier. The RSI is the best indicator to use with Renko. Another profitable Renko strategy you can use is to focus only on the bricks.