What is a Renko chart, and how are the Renko bricks made? These Renko bricks replace the bars seen on other chart types.
A Renko chart is a price chart. Thus, the Renko bricks are made from fixed price movements. This contrasts other chart types that use price bars per a set time frame or tick count. This chart type is 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 are a 3 brick Renko chart, which means that each of the Renko bricks is 3 ticks or points of price – the red bricks are down bricks, 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 was completed.
- Chart2 – you can see on the first chart that the green Renko brick was completed and then followed by another green brick 3 ticks higher than the close. Now there is a red Renko brick that has begun – and 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 location of 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 size consistency for each Renko brick helps 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 classic Renko charts appear not to show all price points. Consider using a Renko brick of 3 ticks, and the price moves 5 ticks. Since there is not enough price movement to make another Renko brick, 2 ticks of the price will not appear on the Renko chart.
When I started our Renko day trading method, this bothered me greatly, especially after trading with time and tick charts for many years. Custom bricks are available that add ‘wicks’ to the Renko bricks to show these prices.
When you use a Renko brick chart that has price wicks, 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.
However, the idea that classic Renko charts do not show all prices is not correct. The prices are missing on the completed chart, but not real time while the brick is being made.
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 could become an issue using bigger brick sizes, but typically not for 3-brick Renko day trading.
The Renko chart video discusses missing prices, along with these additional Renko price topics:
- How is a new Renko chart brick made
- Classic Renko charts and trade execution
- The effect of missing price and Renko method price filters
- Comparing 3 brick Renko charts to other brick sizes
Click the Link To Watch the Video: What Is A Renko Trading Chart And Making New Bricks
