Renko charts are a sort of trading chart that filters out little price swings, allowing traders to focus on the bigger picture. Renko bricks are used to make them.
To make a Renko brick, the price must move a certain amount. The Renko bricks turn white or green as the price rises. The bricks are black or red when the price is decreasing. This makes it simple to see which way the price is currently moving.
When used correctly, Renko charts can help avoid price direction confusion and be included in a trend trading strategy. In comparison to candlestick charts, some traders use to watch price fluctuations.
Renko charts are also easier to read since the markers on them are more uniform, called “bricks,” “boxes,” or “blocks”. However, some price information is lost as a result of this simplification.
Advantages
- To create a cleaner-looking graphic, little price movements are filtered out.
- In the chart settings, you can define what defines a price reversal.
- It is possible to determine the levels of support and opposition.
- The Renko chart can be used as a trailing stop-loss for trend traders.
Disadvantages
- When there isn’t a clear price direction, Renko charts might appear jagged and confusing.
- Less information is contained in a chart with a cleaner appearance.
- A Renko brick-size calculator may recommend a brick size based on historical data, but that brick size may not be appropriate for future price changes.
Renko Bricks Overview
Setting the brick size is the most critical stage in generating Renko charts. For example, in the stock market, you might set it to $0.10 or 10 pips in the foreign currency (forex) market.
A brick appears only once the price has moved by that amount on the Renko chart, not before. A candlestick chart depicts price movement over a specific time period, such as a minute or a day.
While there is a time axis along the Renko Chart bottom, there is no predetermined time restriction for forming a Renko box. It could take 2.5 minutes, three hours, or eight days to complete the task. It depends on how volatile the asset’s pricing is and the brick size you choose.
Types of Renko Bricks
There are four different types of Renko bricks:
- UP Bricks: These bricks formed above former bricks.
- Down Bricks: These bricks formed under former bricks.
- Projection Up Bricks: A possible up brick-built based on the current price before the actual closing price is set during an intraday timeframe.
- Projection Down Bricks: A prospective down brick that would form based on the current price before the actual closing price is set during an intraday timeframe.
How does Renko Chart Work?
A Renko chart is a price chart made up of bricks that move up or down at a 45-degree angle from the previous brick. Bricks are never placed next to each other. The Renko chart’s user controls the chart’s brick size, which dictates when a new brick will form.
Renko charts have a tendency to filter out minor price changes. As a result, this chart pattern is useful for showing trends and can even be utilized as a trailing stop-loss.
However, there is a disadvantage. The Renko chart appears to be highly choppy between June and October. During this time, attempting to purchase and sell solely on changes in color or direction could lead to frustration and losses.
As a result, Renko charts are best used in conjunction with price action analysis and other trading systems rather than being utilized just for trading.
Renko Chart vs. Candlesticks Chart
In comparison to Renko charts, candlestick charts provide a greater emphasis on period and minor price information. In time interval, regardless of how far the price moves, a new candlestick will form.
For instance, on a daily candlestick chart, a candle will form on that day, showing the high, low, close, and open prices, assuming there was at least one transaction.
Renko charts do not display the high, low, close, or open of each trading day, nor do they create a new brick at each time interval. A new brick is created when a minimal movement threshold is attained or surpassed. More information about candlestick trading can be found here.
Renko Trading Strategy
Traders can use Renko charts as part of their trading strategy. Here are a few suggestions:
Chart Patterns
Similar patterns emerge on Renko charts, such as head and shoulders, triangles, and rounded tops and bottoms, just as they do on candlestick charts.
Compared to a candlestick chart, such patterns may be easier to identify on a Renko chart because there are fewer minor price swings. In addition, our chart pattern scanner can recognize these types of chart patterns.
As a trailing stop-loss, use the Renko chart
Renko charts can assist traders who want to profit from trends by allowing them to stay with the trend until a significant reversal occurs. When and if trends last for a long time, huge profits can be made.
Unfortunately, it’s difficult to predict which price advances will continue and reverse; thus, trend trading tactics are still risky.
Resistance
Support and resistance levels that aren’t evident on a candlestick or bar chart are highlighted in Renko charts. Renko charts that consistently turn lower or higher in price imply strong resistance or support.
Traders can take short bets near resistance or purchase near support using these areas as prospective transactions. Traders could also look for breakouts in these regions on the Renko chart to see whether a new trend is starting.
Renko Chart Scalping
The motive of a scalping strategy is to benefit from tiny price swings on a daily basis. Renko charts can be used to determine the overall direction of a trend.
However, because bricks may not update as frequently as candlesticks, they may not always provide timely data. As a result, Renko chart scalping may not be the most appropriate format for this method.
Renko Swing Trading
Swing traders who want to capture trends but don’t want to exit until a significant reversal may benefit from Renko charts.
When the price is heading upwards, for example, the Renko chart will continue to create green bricks until a big reversal occurs. The swing trader can predict the size of the reversal. When this happens, individuals can determine whether or not to leave their long position.
Conclusion
Day traders can utilize Renko charts to spot trends, regions of support and resistance, breakouts, and reversals. In addition, it may be easier to spot price movements and signals for trading because of its easiness.
Traders typically utilize technical indicators to provide additional information in their chart and either reinforce or warn against buying and sell signals due to the Renko chart’s basic price movement nature. Trade with Renko Charts with the help of regulated brokerage firms like InvestBy.