What is a 'Renko Chart'

A Renko chart is a type of chart, developed by the Japanese, that is built using price movement rather than time and volume. It is thought to be named for the Japanese word for bricks, "renga," since the chart looks like a series of bricks.

Renko Chart

BREAKING DOWN 'Renko Chart'

Renko charts are designed to filter out minor price movements to make it easier for traders to focus on important trends. While this makes trends much easier to spot, the downside is that some price information is lost in the mix.

The first step in building a renko chart is selecting a box size that represents the magnitude of price movement. For example, a stock may have a $0.25 box size or a currency may have a 50 pip box size. A renko chart is then constructed by placing a box in the next column once the price has surpassed the top or bottom of the previous box by the box size amount. White bricks are used when the direction of the trend is up, while red bricks are used when the trend is down to make it easier to visualize the trends.

Many traders use renko charts in conjunction with other forms of technical analysis. For example, a renko chart may be useful for determining the prevailing trend and then a more traditional candlestick chart with technical indicators may be used to identify specific entry and exit points along the trend. This is usually the case since renko charts don't show as much detail as other charts given their lack of reliance on time. A stock that has trended sideways for a long period of time may be represented with a single box, which doesn't convey the importance of the move.

Renko Chart Signals

Renko charts are very effective in identifying key support and resistance levels since there is a lot less noise than a candlestick chart.

Trading signals are typically generated when the direction of the trend changes and the bricks alternate colors. For example, a trader might sell an underlying asset when a red box is placed at the end of a series of climbing white boxes. Since this type of chart was designed as a way to follow the general price trend of an asset, there can often be false signals where the color of the bricks changes too early, producing a whipsaw effect. This is why it's important to use renko charts in conjunction with other forms of technical analysis.

RELATED TERMS
  1. Line Chart

    A line chart connects a series of data points with a line and ...
  2. Box Size

    Box size is the minimum price change that must occur before the ...
  3. Confirmation On A Chart

    Confirmation on a chart is the term used to describe a chart ...
  4. Bar Chart

    A bar chart depicts the price range of a security during a given ...
  5. Price By Volume Chart - PBV

    A price by volume, or PBV, chart is a horizontal histogram plotted ...
  6. Point-And-Figure Chart

    A point-and-figure chart plots price movements as a series of ...
Related Articles
  1. Trading

    A Look at Facebook Ahead of Wednesday's Earnings (FB)

    On Wednesday, the fourth largest company in the S&P 500 by market cap will report earnings. Here we take a look at technical indicators.
  2. Trading

    Trading Without Noise

    False signals can drown out underlying trends. Find out how to tone them down and tune them out.
  3. Investing

    Is It Smart to Invest More in Stocks Right Now?

    We look for clues in the S&P 500's long-term trend and trend strength.
  4. Trading

    Tips for Stock Charts That Enhance Your Analysis

    Find out how to create well-designed charts that will enhance your market analysis.
  5. Trading

    Introduction to Swing Charting

    Discover why traders use swing charts, how these charts are constructed and how to start using them.
  6. Trading

    Analyzing Chart Patterns

    Learn how to evaluate a stock with a few easy-to-identify chart patterns.
RELATED FAQS
  1. How do experienced traders identify false signals in the market?

    Learn how traders identify false signals in the market when using indicators and strategies to better identify true market ... Read Answer >>
  2. What are the differences between a bar chart and candle sticks?

    Explore the difference between bar and candlestick charts. Learn how technical analysts use charts in the analysis of supply ... Read Answer >>
  3. What Does It Mean When There Is 'Price Action'?

    Price action refers to the day-to-day fluctuation in the price of an asset. Read Answer >>
  4. What do the different colored candlesticks mean?

    A typical candlestick chart is composed of a series of bars, known as candles, which vary in height and color. Read Answer >>
Trading Center