What Is a Renko Chart and How I Use It in Trading

What is a Renko Chart?

The Renko chart originated in Japan. The focus on price fluctuations alone is the fundamental feature of the Renko. A Renko chart is constructed with bricks. After the price hits and closes at a certain price level, a new brick is produced. Another new brick is produced and positioned at a 45-degree angle up or down. Up bricks are often green, whereas down bricks are red.

An example of a Renko chart showing how the bricks are built on the chart.

How is Renko calculated?

In the SP 500 Renko chart, for example, we use a traditional 10-point brick size. When the SP 500 closes up or down by at least 10 points every 15 minutes, a new brick or more will be added to a 15-minute Renko chart. Each brick has an upper and lower limit separated by ten points.

Let’s say the final brick limits are 4,100 and 4,110. At 10 a.m., the SP 500 was trading at 4,100. At 10:15 a.m., it was trading at 4,105, which was between the final brick’s boundaries of 4,100 and 4,110. As a result, no new bricks will be produced.

At 10:30 a.m., the SP 500 was trading at 4,075. Two more red bricks will be inserted since it was closed at 25 points lower than the previous lowest boundary of 4,100. However, because the price movement is set at 10 points for each brick, only two bricks will be created. The last brick’s lower and upper limits are now 4,080 and 4,090.

Example of a Renko chart where the brick size is determined by a fixed number.

How are Renko brick sizes calculated?

Many people utilize a 14-period ATR. A new brick is formed, for example, if the SP 500 Daily Renko chart has an ATR 14 of 40 and the price closes at least 40 points above or below the boundaries after each day ends. Personally, I like to use a predetermined number, such as 6 or 10 points.

Example of a Renko chart using ATR 14 to calculate the brick size

Which time frame is best for Renko chart?

This is a matter of personal preference and trading style. For the SP500, I favor the hourly and daily Renko charts.

Does Renko Chart work?

Compared to other types of charts, Renko charts are extremely successful at detecting support and resistance levels. When a trend is detected, Renko traders can more easily capture the bulk of the trend and maximize earnings.

Support and resistance lines on a Renko chart of the S&P 500