Profitable Renko strategies are designed to eliminate much of the noise in the markets created by standard candlestick charts. If you are tired of using the same old Japanese candlestick charts, here is the Renko chart. We use Renko charts to remove the time factor and focus only on the price separating the trend.

 

 

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When actively trading the markets (scaling, day trading), a methodology that eliminates market noise is important. Renko trading strategies are time independent and offer an eccentric way to view price action.

Free Renko charts can be used in several asset classes, including cryptocurrencies, but the simple Renko system is designed for use in the Forex market, but is not limited to it.

In this trading tutorial, we will tell you what Renko chart forex is, how to use Renko chart for trading and how to optimize your Renko brick size.

What is a Renko chart?

A Renko chart is a technical tool or type of chart built using only price data. Unlike Japanese candlestick charts, which are built using price, time, and volume, Renko charts only measure price movements.

Renko has no time dimension.

Check out what a typical forex Renko chart looks like below.

Renko charts aren’t a hidden secret dating back to the days of feudal Japan, as some trade experts would like you to believe. Renko bars were actually developed decades ago.

The name Renko means brick in Japanese and comes from the word “renga”. These charts are sometimes referred to as brick charts by traders.

Steve Nison, the father of modern candlestick charting, is actually the one who introduced Renko chart forex to the general public. These charts are often compared to traditional candlesticks, but there are some important differences. Candlestick charts have different lengths of “wick”, but Renko bricks are all the same size.

The simplified bricks you see on Renko charts make it easier to read the market and make quick decisions. This chart is ideal for day traders, but can be used by traders using all timeframes. Renko charts allow you to determine where the market is actually moving by removing the noise of candlestick charts applied to long-term trading strategies.

See below the differences between popular Japanese candlestick charts and Renko charts live.

The differences between the two types of charts are quite noticeable. Renko charts do a much better job of smoothing out price action.

Let’s take a step forward and learn how Renko bricks are formed.

To use a profitable Renko strategy, you need to understand the basic fundamentals of Renko blocks.

All candlesticks on the Renko chart are shaped like building bricks, so they are called bricks. The rectangular bricks used to build the walls are approximately the same size. The same goes for Renko charts. All bricks are the same size. The size of the Renko brick is predetermined by the user.

How to read and write Renko trading charts

Reading Renko charts is simple. Because the bricks are of fixed size, they can easily be compared to each other. The color and direction of a Renko brick will change when it exceeds the value of the previous brick. This indicates to traders that the trend is changing and the price is likely to rise in the opposite direction.

Each brick represents a price range (e.g. $0.25). However, the bricks are evenly sized within the same graph, but can be adjusted to suit your trading goals. Individuals who open and hold higher cap positions use a different brick size than penny stock traders.

It is recommended to use a short average true range or ATR to configure each brick. ATR is derived from the closing price of a stock. This means that the Renko chart is a lagging indicator. The following steps show how to read Renko bars.

Note #1: If you use Renko bars with wicks or tails, some bricks may show additional wicks at the top or bottom of the brick. However, the brick size remains the same.

In the Tradingview charting platform, you can go to Chart Settings – Styles – Wick and choose how you want the bricks to be displayed with or without wicks.

Before going back to Renko bricks as wicks, let me tell you the foundations or foundations of Renko bricks.

We have already established that the brick size is predetermined by the user. If you are trading against the Renko chart and your preferred brick size is 20 pips, the brick will only form when the price moves up or down by 20 pips.

 

The best way to illustrate this concept is to view Renko blocks through a candlestick chart. On the EUR/USD 5-minute candlestick chart below, I’ve highlighted an area worth 20 pips.

The green Renko brick only forms after the price moves up 20 pips. Conversely, red Renko bricks form only after the price drops by 20 pips.

As you can see, the time interval between each brick is inconsistent.

In the EUR/USD chart example, the time it takes to print one Renko block varies from 20 minutes to 1 hour 45 minutes.

It is clear that the Renko is less noisy and blocks out a lot of noise between swing low and swing high.

Important note: When trading with Renko charts, for the color of a Renko brick to change, the price must move twice the price distance of the size of the brick.

For example, if the brick size stays at 20, you will have to actually move 40 pips to print the red brick after using the green brick.

Let’s revisit for a moment why some blocks have wicks.

Renko chart trading with wicks can be a very powerful tool in your trading arsenal. A brick with a wick provides an additional clue to a battle between a bull and a bear.

Only if there is a strong attempt to reverse (even change the color of the brick from green to red and vice versa) will the Renko brick print the wick, but it will fail. The wick will simply show you how many pips you have taken in the opposite direction.

Note #3: A brick will only print a wick when price moves in the opposite direction of the previous candle by the length of the minimum brick size +1.

Let’s see how to optimize Renko blocks and how to choose the right Renko brick size.

How to choose the right Renko brick size?

If you don’t know what size is right for your Renko chart, we have a solution for you.

To read prices dynamically through Renko blocks, you can use the brick size determined by the Average True Range (ATR). Rather than choosing an arbitrary brick size, it provides more accurate dynamic support and resistance levels.

ATR automatically detects the correct brick size for better price action.

Note #4: The downside of using an ATR-based Renko chart size is that when the ATR value changes, the Renko bricks are redrawn to reflect the new change.

When choosing a Renko brick size, ask yourself these questions:

  • What are your goals as a trader?
  • What are the time constraints? How much does the transaction cost?
  • Can you open a smaller or larger location?
  • Do you consider risk-taking or risk-averse?

If you are seeking a larger position with lower risk over a longer period of time, we recommend using the larger Renko brick size. On the other hand, if you’re pursuing a high-risk position that requires you to pay close attention to volatility, smaller bricks are better.

Learn how to properly trade Renko charts.

See below:

Simple Renko system

We will suggest two trading strategies that can be used with Renko blocks. The first simple Renko system is an indicator-based strategy that uses price momentum divergence to identify trend reversals.

Renko Trading Strategy #1

For this Renko trading strategy, you only need to use the RSI indicator. We want to use the 20-period RSI indicator. So the duration is equal to the size of the ATR Renko bricks.

See scalping Renko charts below.

After confirming the momentum divergence, an entry signal is triggered when a reversal signal is received. On a Renko chart, a trend reversal is triggered when the color of the brick changes. In this case, if you find a bearish divergence, enter a short position after the brick goes red.

For an optimistic divergence, wait until the bricks turn green.

If another reversal pattern forms in the opposite direction of the trade, exit the profitable trade. As a way to protect your account balance and not lose too much, SLs can be placed above and below the swing points developed after entry.

Much of the noise inherent in regular time-based charts is removed. Therefore, divergence and trend reversal are much easier to find when trading with Renko charts. RSI is the best indicator to use with Renko.

Renko Trading Strategy #2

Another lucrative Renko strategy you can use is to focus only on bricks.

This system does not require any additional technical tools.

Let’s take a look at a very simple yet powerful Renko chart pattern incorporating a wick. This Renko price pattern looks for two consecutive bricks of the same color and both bricks have a wick.

The location of this Renko pattern doesn’t really matter. You may be at the end or in the middle of a trend. This pattern has a very high success rate when traded in the right context. Look at these two brick patterns and the blocks should not move back and forth within the trading range.

If not, there is a green light to take the signal generated by this trade setup.

Conclusion – Renko Trading Strategy

Renko bars provide a cleaner, cleaner representation of price action. If you’re having trouble reading prices on candlestick charts, it’s time to look the other way. Trading with the profitable Renko strategy may be the best fit for you.

We believe that Forex Renko charts are more suitable for traders who still have trouble analyzing candlestick charts. The Renko trading strategies presented through this trading guide are only an introduction to the world of Renko bricks. We hope you have a clear understanding of what the possibilities are with this new charting technique. Be sure to read Chart Pattern Trading Strategies.