A Renko chart is a type of chart, developed by the Japanese, that is built using price movement rather than both price and standardized time intervals like most charts are. It is thought to be named after the Japanese word for bricks, 'renga,' since the chart looks like a series of bricks. A new brick is created when the price moves a specified price amount, and each block is positioned at a 45-degree angle (up or down) to the prior brick.
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An up brick is typically colored white or green, while a down brick is typically colored black or red. • Renko charts are composed of bricks that are created at 45-degree angles to one another. Consecutive bricks do not occur beside each other. • A brick can be any price size, such a $0.10, $0.50, $5, and so on. This is called the box size. Box size can also be based on the (ATR). • Renko charts have a time axis, but the time scale is not fixed.
Some bricks may take longer to form than others, depending on how long it takes the price to move the required box size. • Renko charts filter out and help traders to more clearly see the trend, since all movements that are smaller than the box size are filtered out.
• Renko charts typically only use based on the chart time frame chosen. For example, if using a weekly time frame, then weekly closing prices will be used to construct the bricks.
Highs and lows are also ignored, only closing prices are used. This leaves out a lot of price data since high and low prices can vary greatly from closing prices. The use of only closing prices will reduce the amount of noise, but it also means the price could break significantly before a new box(es) forms and alerts the trader. By then it could be too late to get out with a manageable loss. Therefore, when using Renko charts, traders often still use stop loss orders at fixed prices, and won't rely solely on Renko signals.
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