Renko Charts

What are Renko Charts?

They are stock charts used in charting and study of chart patterns in technical analysis. They are trend following technique and are excellent in catching major portion of the trend.

This chart has its origin from Japan. These were developed in eighteenth century, to trade rice. Later on they were found useful in trading any other financial instruments. Just like in Kagi chart & Point and Figure chart, Renko charts also disregard the time factor in X axis.

This charting method is thought to have acquired its name from a Japanese word 'renga' meaning 'brick'. These charts are similar to Three Line Break charts except that a brick (or a line) is drawn in the direction of the previous price move only if a fixed amount of price, which is called as the box size, has been exceeded. The bricks are always of equal in size.

You can get more detailed information about this charting technique in the book Beyond Candlesticks by Steve Nison.

How Renko Charts are constructed?

The size of boxes or the bricks which constitute these charts are predetermined by the chartist. They are color coded for better appreciation of the trend. The bricks that go up are made white, green or blue and the bricks that go down are made black, red or orange.

To draw Renko bricks, today's close is compared with the high and low of the previous brick. When the closing price rises above the top of the previous brick by the box size or more, one or more equal height, white (or blue) bricks are drawn in the next column. If the closing price falls below the bottom of the previous brick by the box size or more, one or more equal height, black (or red) bricks are drawn in the next column.

If the market moves up more than the amount required to draw one brick, but less than the amount required to draw two bricks, only one brick is drawn. For example, in a two-unit Renko chart, if the base price is 100 and the market moves to 103, then one white brick is drawn from the base price of 100 to 102. The rest of the move, from 102 to 103 is not shown on the Renko chart. The same rule applies any time the price does not fall on a box size divisor.

This type of chart is very effective for traders to identify key support and resistance levels. Buy/sell signals are generated when the direction of the trend & color of the bricks changes.

Study the chart given below and compare it with the bar chart.

Click on these charts to see bigger charts.

Renko Chart for Technical Analysis in Stock Trading

This Renko Chart has a Box Size of  25

Bar Chart for Technical Analysis in Stock Trading

This bar chart is for the comparison. 

All the charts given above belong to the same stock and time frame.

How Renko Charts are traded?

A change in colour of the brick signals the change in the trend. A new white brick indicates the beginning of a new uptrend. A new black brick indicates the beginning of a new downtrend.

So buy when a new white or blue brick appears and sell when black or red brick appears.

Since the Renko chart is a trend following technique, there will be whipsaws in the side trend. But this technique is intended to allow the traders to ride on the major portion of the trend.

Since a Renko charts filter out the minor ups and downs, they are excellent to determine support and resistance levels.

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Related Readings

There are many types of charts used in stock analysis. You may click on the name of each chart listed below to learn and understand more about them.

  1. Bar chart
  2. Bar charts also called as OHLC charts or open-high-low-close charts. They are used in charting and study of chart patterns in technical analysis. Each bar is a symbol created by connecting a series of price points, typically used to illustrate movements in the price of a financial instrument.

  3. Candle chart
  4. Candle chart or simply candlesticks charting is an ancient Japanese method of technical analysis. Candlesticks dramatically illustrate supply and demand concepts defined by classical technical analysis theories. Candlestick patterns not only display the absolute values of the open, high, low, and closing price for a given period in a format similar to the modern day, bar chart. But they also indicate trend continuation and trend reversal more clearly and more precisely.

  5. Candlevolume chart
  6. Candlevolume Chart combine the features of Equivolume charts and Candlestick charts. These charts have the wicks or tails and filled/unfilled body features of Candlestick charts, as well as the volume-based body width of Equivolume charts. This combination gives us the unique ability to study Candlestick patterns in combination with their volume.

  7. Equivolume chart
  8. Equivolume Charts display the relationship between price and volume in a bar. They presents a highly informative picture of market activity for stocks, futures, and indices. They differ from candlesticks by not considering open and close prices, and they differ from bar charts by not considering time factor.

  9. Kagi chart
  10. Kagi Charts differs from traditional stock charts, such as the Candlestick chart by being independent of time and volume.

  11. Line chart
  12. Line charts are created by connecting a series of data points together to form a line. This is the basic type of chart common in many fields.

  13. Point and figure chart
  14. Point and Figure charts just like in Kagi charts, disregard the passage of time and the chart changes only when the price changes. Rather than having price on the y-axis and time on the x-axis, these charts display price changes on both axis.

  15. Swing chart
  16. Swing charts are also called as Gann charts because their construction is based on W.D.Gann's method of trading. These charts disregard time factor and does not consider opening and closing prices.

  17. Three line break chart
    Three Line Break Charts originates from Japan and gets its name from the default number of line blocks typically used. They use an up block (line), a down block (line) and a reversal block (line). These charts disregards the time factor, which is usually plotted on the X axis, in commonly used stock charts.

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