Renko Charts: Simplifying Forex Price Analysis – If you like to go ahead and look at raw price action, then Renko charts are definitely worth the time it takes to learn them.
The origin of renko charts is unclear, but it seems that they were first used by Japanese commodity traders in the last century.
Renko Charts: Simplifying Forex Price Analysis
Their main strength is that they can simplify price history and allow for a better understanding of volatile markets such as oil, metals, exotics and even some indices.
Renko Simple System
The unique way a Renko chart works means that small, noisy price movements can be hidden to reveal the important things like trends, supports and resistances. With the right understanding, Renko chart analysis can yield insights that others have overlooked using conventional price-time charts.
Each point on a Renko chart is a block or brick. And a brick is drawn every time the price of the device increases or decreases by a certain amount. This means that the chart moves forward in the timeline only when the price changes.
Unlike regular price-time charts, renko chart patterns always consist of regular up and down diagonal lines. See Figure 1.
Working with renko charts requires a different way of thinking. This is because in this charting method the pattern only changes when the price goes up or down by a fixed amount.
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Renko charts never move horizontally, they just move up or down at the same constant rate. This makes understanding the trends a bit unclear at first.
When the price of the underlying is accelerating in a strong trend, a normal chart plots this as a steeper line on the vertical plot axis. This represents a faster rate of change of price relative to time.
A renko chart meanwhile plots more dots or blocks to represent accelerating price. The stronger the trend, the more Renko blocks will be drawn on the chart during that time period.
This means that the timeline in the renko chart is not fixed but expands or contracts depending on the strength of the trend.
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Strong trend = more points plotted Weaker trend = fewer points plotted No trend = no points plotted
For example, if the renko block size is set to 100 points. Each block represents a fixed unit of price movement. The renko chart will only add a new block and move forward in the graph when the price moves up or down by exactly 100 points.
The charts in Figures 2a and 2b compare EURJPY over the same time period. The first graph is a normal price versus time graph. The second is the Renko chart. The corresponding peaks and troughs in both are marked for comparison as points 1 to 7.
In both diagrams the distance between points 1, 2 and 3 is roughly proportional. But from the moment the price drops suddenly after point 3, the renko chart does not react in the same way.
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The timeline on a Renko chart is changing, so this rapid price drop is represented by a faster rate of progression or charting of Renko blocks. In fact, a renko chart removes time and rate of change from the chart. This trades it for price and the rate of chart progression by planning bricks at a faster or slower rate.
The purpose of this is to hide the small, random price jitters that play no part in understanding a trend.
Although it may sound confusing, when plotted, a Renko chart can give insight into trends that would otherwise be overlooked when focusing solely on the price-time axis.
In a side-by-side comparison, a renko chart usually has much less noise and can better identify the trends, highs, and lows without the clutter.
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One of the problems with the standard renko system is that of the fixed block size. In real markets, the magnitude of price changes is not fixed but dynamic. This is known as market volatility.
A brick size of 100 points may be appropriate at one point, but not at another. In most markets the volatility does change from day to day, from week to week and from year to year.
To get around this, most Renko chart systems use a volatility setting rather than a fixed block size. Instead of having a fixed size for each increase or decrease, the size is determined by a volatility index known as ATR or Average True Range. In this way the block size represents a unit of volatility and not a fixed price unit.
This bypasses the need to set a fairly arbitrary block size. Instead, the chart will resize accordingly as volatility changes over time.
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Renko charts are particularly good at finding support and resistance areas because they condense long but static periods. Many traders find this makes it easier to see where price support and price resistance is occurring.
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Most financial charting packages have the ability to plot Renko charts. Also, there are many adaptations to the standard renko system and for these there is a wide variety of custom renko indicators and trading systems.
Disclaimer: This is not investment advice. Forex, options, futures and CFDs are complex instruments and come with a high risk of losing money quickly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. RENKO CHARTS are a unique tool with great power in technical analysis and trading, which is little understood and used. I have been using Renko and other Japanese chart types professionally in my trading and technical analysis for many years.
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Traditional Candlestick Chart (Left) vs. Renko (Right) (WTI Rude Oil) – See how the Renko chart cleans out price noise and makes analysis more objective:
These types of Japanese charts are ideal for creating a more disciplined, systematic, simple and effective approach to your trading. They help sort out the ‘bad’ emotion and psychology in your trading! Combine Renko charts with ‘western’ technical analysis tools and you’ll start creating really powerful trading strategies. They are so simple once you understand them that they are ripe to move into the world of algorithmic trading. They even take time – although with charting software, time can be manipulated on Renko charts to create some great strategies! Renko charts are fantastic for trading all markets: stocks, forex, commodities and crypto.
In terms of trading strategies, I find them a good tool that can be used for breakouts, trend following, reversal systems, as well as helping to keep your trading shirt on your back and your hard earned money in your pocket, as they are also a great weapon to deploy for risk management and trading purposes.
I have successfully used Renko charts for over 2 decades! This is probably my most profitable chart type. I even created my own automated Renko trading system that in its best year returned almost 300%!! I still use the system very profitably to this day!
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The key to success using these charts is understanding how to manipulate time, being able to get the correct block size and how to combine this form of technical analysis with other tools to create powerful trading strategies. If you can do this you are on your way to mastering Renko charts!
If you want to learn about RENKO CHARTS completely for free and have a few spare hours to invest in your trading efforts, you can access my free video course on my YouTube channel (thestophunter) which covers the whole subject, taking you from zero to hero in a matter of hours!
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Risk Warning: This course is for educational purposes only and should not be considered investment advice. Always be aware that trading and investing come with a high level of risk – always talk to your financial advisor first before investing and trading. A Renko chart is a type of chart, developed by the Japanese, built using price movement rather than both price
Standard time intervals like most charts. It is thought to be named after the Japanese word for bricks, “renga”, because the diagram looks like a series of bricks. A new brick is created when the price moves a set price amount, and each block is placed at an angle of 45 degrees (up or down) to the right of the previous brick. The top brick is usually white or green, while the bottom brick is usually black or red.
Renko charts are designed to filter out minor price movements to make it easier for traders to focus on important trends. Although this makes trends much easier to spot, the downside is that some
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