What is a Renko Chart?
A Renko chart comes from Japan. The key element of Renko is the focus on the price movement only. A Renko chart is comprised of a series of bricks. A new brick is formed after the price reaches and closes at a specific price amount. Another new brick is created and positioned at a 45-degree angle up or down. Typically, an up brick is green, and a down brick is red.
How is Renko calculated?
For example, we set up the SP 500 Renko chart with a traditional 10-point brick. On a 15-minute Renko chart, a new brick or more will be added when SP 500 closes up or down at least 10 points every 15 minutes. At 10 AM, SP 500 is trading at 4100. At 10:15 AM, SP 500 is trading at 4105. No new brick will be added because SP 500 only closes 5-point higher. At this time, 4100 is still being used as the basis. At 10:30 AM, SP 500 is trading at 4075. 2 new red bricks will be added because SP 500 closes 25 points lower below 4100; however, only 2 bricks are created because the price movement is set at 10-point per brick. At this time, 4080 is used as the basis.
How are Renko brick sizes calculated?
Many use a 14 period ATR. For example, if SP 500 Daily Renko chart with ATR 14 shows 40, a new brick is created when the price closes at least 40 points above or below the basis after each day closes. I personally like to use a fixed number like 6 points or 10 points etc.
Which time frame is best for Renko chart?
This is a personal choice and trading-style preference. I personally prefer the hourly and daily Renko charts for SP500.
Does Renko Chart work?
Renko charts are highly effective in identifying support and resistance levels in comparison to the other types of charts. When a trend is identified, it’s easier for Renko traders to capture the majority of the trend and maximize the profits.