Renko chart

A renko chart is built from bricks of the same height. Each brick stands for a price move of one box size. Rising bricks have one color, falling bricks another, and each new brick is placed one step up or down from the previous one.

The name comes from the Japanese word renga – brick. The horizontal axis is not a regular time scale: a brick can take a minute or a week to form. On Charts, Renko is one of the chart types.

• A box size is chosen, for example 10 dollars.
• When price closes one box above the top of the last rising brick, a new rising brick is added.
• A brick in the opposite direction needs a move of two boxes from the last close: one to return through the last brick and one to form the new brick below it.
• Moves smaller than the box size are not drawn at all.
• Bricks are usually calculated from closing prices of a base timeframe, so wicks inside the period are ignored.

A small box gives more bricks, more detail and more false reversals. A large box gives a cleaner trend and later signals. A common starting point is the average true range of the timeframe you trade.

• Fixed size – a set number of points, dollars or pips. Simple, but it has to be changed when the price of the asset changes a lot.
• ATR-based size – the box equals the average true range of the last periods, commonly 14. The chart adapts to volatility by itself.
• Percentage size – the box is a share of the price, which keeps bricks comparable over long histories.

Chart patterns such as a double top are read on renko the same way as on candles. They often look cleaner because noise is filtered out.

• Direction – follow the color. A run of rising bricks is an uptrend, a run of falling bricks is a downtrend.
• Entry – on the first brick of a new color after a run, or on a breakout of a level formed by several brick tops or bottoms.
• Stop – one or two bricks behind the entry, beyond the last reversal.
• Exit – on the first brick of the opposite color, or at a support or resistance level marked on the chart.

• Time – a candlestick chart adds a candle every period. Renko adds a brick only after a move of one box.
• Detail – candles show open, high, low and close. Bricks show only that price moved one box.
• Noise – renko removes small swings. The cost is delay: a reversal is visible only after price has moved two boxes.
• Volume and time-based tools – they need a regular time axis and are better read on candles.

• Choosing a box that is too small – the chart fills with one-brick reversals and loses its purpose.
• Forgetting the delay – the real price may be far from the edge of the last brick when it prints.
• Backtesting on bricks alone – fills inside a brick are unknown, so results look better than they would be in live trading.
• Ignoring time – ten bricks in an hour and ten bricks in a month are very different markets.