# Introduction to Renko Charts

Renko Charts is a type of charting concept that was developed by the Japanese. Renko (or Renga) is the Japanese word for Brick and aptly reflects the nature of the Renko charts. Renko charts are constructed by plotting price movements as bricks of a certain size. Unlike its close cousin, the Bar Chart or Candlestick chart which plots Price’s Open/High/Low/Close against Time on the x-axis and Price on the y-axis, Renko charts purely reflect price movement and is time independent. Although most Renko charts do have time plotted on the x-axis, it is irrelevant.

Renko charts are considered to be pure price action minus the noise one gets to see on Bar or Candlestick charts. The Renko’s or bricks are printed next to each other. So when price moves up by a certain number of pips, a bullish Renko is printed and when price drops twice the pip size, a bearish Renko is printed. Therefore, Renko bricks are can be seen as boxes printed next to each other representing price action.

The chart above shows an example of a GBPUSD Renko charts. As you can see, price is plotted purely based on the movements rather than their open or high price for example.

If there’s something noticeable with Renko charts, it has to be how price is smoothed out. This can perhaps be best shown by comparing Renko charts with a Line, Bar and Candlestick chart in the next image below.

## How does Renko Chart Work

Renko charts plots price as bricks. When price moves up or down the specified size of the brick in pips, a new Renko brick is printed. For example, if the Renko’s brick size is set to 0.0001 which is nothing but 10 Pips, then when price moves 10 pips a new brick is printed on the 10th Pip.

### Renko reversal bricks

Due to the brick size, it is therefore by logic that Renko reversal bricks need to move 10 Pips below the previous Renko brick. In other words, if price moves up by 32 Pips, we can see 3 Renko bullish bricks printed. Now if price drops by 9 Pips, no brick is printed until price moves the next 1 pip to make a total of 10 pips move. But with reversal Renko bricks, price needs to move double the pips. So in the above example, a bearish Renko brick is formed, when price moves down by 20 pips.

The Chart below shows the above explanation.

The chart below shows a 70pip renko chart. If we calculate the price difference from the bullish renko brick marked with the right arrow to the next bullish renko brick, we see that price moved from 1.52750 through 1.5345, which is 70 pips. Therefore a bullish renko brick is printed. Now notice where the next bearish renko brick is printed (at 1.52050).
Notice that no renko brick was formed with a 70 pip drop, but rather on a 140 pip drop. So price reversed from 1.53450 to 1.52050 which is a total of 140 Pips move.
What happens when price moves only 9 Pips in a 10 Pip Renko and then drops down 20 Pips? Simply put, only a bearish Renko is printed.

## Configuring Renko Charts

Renko Charts can be configured differently:

Fixed Pip Renko: In this type of Renko, traders can specify the Pip size to build their Renko charts. The most common fixed pip Renko charts are 5, 10, 20 Pips but it is entirely up to the trader on the number of pips they want the Renko to be configured for.

The disadvantage of fixed pip Renko chart is that during times of high volatility, the bricks can end up choppy. Also, the number of pips one specifies will have to change. For example, a trader cannot use a 5 Pip box size on EURUSD and Gold charts for example.

ATR Based Renko: The ATR based Renko charts therefore addresses the issue of volatility. So instead of using a fixed Pip size; the ATR method instead uses the 14 day (can be any setting; 14 or 21 for example) ATR value. This tends to reflect the true volatility of the underlying symbol or instrument. The problem with this method however is that if volatility continues to increase and therefore the ATR values tend to fluctuate a lot, the entire Renko chart is reconstructed thus making it unreliable.

The chart below shows a comparison between a 50 Pip Fixed Renko and an ATR(14) based Renko.

Although the Renko’s might look a bit different in structure, they are nothing but measuring price with a 10 Pip move on the left and the current ATR(1)4 value of 62 Pip move on the right side.

The disadvantage with ATR based Renko setting is that if there are periods of high volatility, then the ATR value can fluctuate thus your Renko chart would be changing every few days invalidating any analysis you might have made.

## Which Renko Setting is better?

The answer to this question is very subjective and is left to the trader to decide. For example, some traders use a 10 Pip Renko setting to scalp the markets for some multiples of profit. Longer term traders tend to use the ATR’s value instead.

The ideal setting would be for traders to take into the account the current ATR setting and then set the ATR’s value as fixed pip. Traders can then check upon future ATR readings and adjust their values accordingly.

• Often referred to as noiseless trading, Renko charts reflect true price direction and thus represents trends very smoothly
• Traditional chart analysis such as Support/Resistance, patterns such as head & shoulders, triangles, double and triple tops and bottoms can be applied to Renko charts
• Can be used on any instrument with good enough liquidity