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. Forex Charting Software

    Forex charting software helps traders analyze foreign currency ...
  2. Quality Control Chart

    A quality control chart is a graphic that depicts whether sampled ...
  3. Organizational Chart

    An organizational chart is a diagram that outlines the internal ...
  4. Black Box Model

    A black box model is a system using inputs and outputs to create ...
  5. Red Candlestick

    A red candlestick represents a downward price movement where ...
  6. Safe Deposit Box

    A safe deposit box is usually located inside a bank and is used ...
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

    Introduction to Swing Charting

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

    Multiple Time Frames Can Multiply Returns

    Short-term and intermediate charts complement the underlying trend and refine entries and exits.
  4. Trading

    Is It A Breakout? See The Point-And-Figure Chart

    These stocks have broken out of a triple top formation using point-and-figure charting, a bullish sign.
  5. Trading

    What Your Trading Charts Aren't Telling You

    You may be missing some key statistics when following charts in the market.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. What is the best method of analysis for forex trading?

    Learn more about the types of forex analysis used by currency traders such as charting tools, economic indicators and/or ... Read Answer >>
  4. What are the main advantages of using Moving Averages (MA)?

    See why moving averages have proven to be advantageous for traders and analysts and useful when applied to price charts and ... Read Answer >>
  5. What is the difference between fundamental and technical analysis?

    Fundamental analysis and technical analysis, the major schools of thought when it comes to approaching the markets, are at ... Read Answer >>
Hot Definitions
  1. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  2. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  3. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  4. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
  5. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  6. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
Trading Center