What is a Renko chart and how are the Renko bricks that replace the bars from other chart types made?
A Renko chart is made from Renko bricks of fixed price movements. This is in contrast to other chart types that use price bars per a set time frame or tick count. This is the chart type used for evaluating price action and making the trade setups in our day trading method.
What Is A Renko Chart
Let’s look at how the Renko charts and new bricks are made.
The 2 charts below are Renko charts. As you can see, there are no bars on the chart, but instead there are Renko bricks of the same predetermined price amount. There are also no time frame or tick count considerations for a Renko chart, only price movement.
These charts happen to be a 3 brick Renko chart, which means that each of the Renko bricks are 3 ticks or points of price – the red bricks are down brick and the green bricks are up bricks.
How Are The Renko Bricks Made
Look at the right side of the 2 charts, where you will see a new brick before it is closed:
- Chart1 – the last full Renko brick was a down red brick of 3 ticks. The next Renko brick has started up [green brick] and now to complete it will have to be 3 ticks above the high of the previous red brick, which is also 6 ticks above the brick low where it completed.
- Chart2 – you can see on the first chart that the green Renko brick did complete and was followed by another green brick, 3 ticks higher than its close. Now there is a red Renko brick that has begun – to complete it will have to be 3 ticks below the low of the previous green brick, which is also 6 ticks below the brick high where it completed.
Compare The Renko Chart To A Bar Chart
Compare the Renko chart to a bar chart at the yellow circles. There were two profitable Renko method trades done here – this will be clearer when the chart is discussed with the Renko trading indicators on it. I would not have seen a trade setup on the bar chart.
The consistency of size for each Renko brick helps to filter out the ‘noise’ from other chart types. By removing the more irregular and random bars that can become harder to trade, the Renko chart trading method becomes easier to trade.
Classic Renko Brick Charts Do Not Show All Price
One characteristic of Renko charts that should be understood, the charts do not show all price points. Consider that you are using a Renko brick of 3 ticks and price moves 5 ticks. Since that is not enough price movement to make another Renko brick, there will be 2 ticks of price that does not show on the Renko chart.
When I first started our Renko day trading method, this bothered me to a great deal, especially after trading with time and tick charts for so many years. There are indicators available that add ‘wicks’ to the Renko bricks to show these prices, but these start to add some of the ‘noise’ back to the chart.
This Renko brick chart has price ‘wicks’. As you can see, the down bricks show the higher prices and the up bricks show the lower prices – the ‘wick’ can be 1 tick or 2 ticks, since 3 ticks would complete a new Renko brick.
Do you feel that these price ‘wicks’ add or detract to Renko chart trading?
Renko Brick Chart Video
I have continued to trade the classic Renko chart, and have not felt that it has affected day trading method profitability. The missing prices would start to become an issue using bigger brick sizes, but typically not for 3 brick Renko day trading.
The Renko chart video discusses missing price, along with these addition Renko price topics:
- How is a new Renko chart brick made
- Classic Renko charts and trade execution
- The affect of missing price and Renko method price filters
- Comparing 3 brick Renko charts to other brick sizes
Clink Link To Watch Video: What Is A Renko Trading Chart And Making New Bricks