What is a Renko chart and how do you use it when trading?

What is a Renko chart?

A Renko chart is a type of trading chart that gives you market data in a different way to the more traditional charts like the candlestick, HLOC and Heikin Ashi. Instead, a Renko chart is comprised of boxes or ‘bricks’, which show only significant pricing trends.

Renko charts work by grouping smaller price movements into consolidated blocks. You’ll determine the price size you want counted as a single box or brick, and your Renko chart will only show you an uptrend or downtrend that’s continued for that unit of value. For example, if you set your Renko chart’s brick size for $5, your chart will only create a new one, going up or down, once that market has risen or fallen by $5.

This is very different to the way most charts operate, which display market movements as per different units of time, for example a candlestick for every minute.

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Why use a Renko chart?

The reason traders use Renko charts is that they can offer a more simplified view, which makes it easier to spot real trends. This is because chart styles that include time come with the ‘noise’ of constant fluctuations, which can make market trends the forest that’s hard to see for the trees.

This can help traders see a strong uptrend or downtrend when they occur. It also makes Renko charts good for recognising support and resistance levels.

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However, Renko charts also come with their own downsides. For example, because Renko charts ignore the time dimension, they come with a lot less of the information that candlestick charts offer, like the market’s opening, closing, and high and low prices. This can also often make them unhelpful for short-term trading styles, such as scalping and day trading.

What is a Renko box size?

A Renko box size is the unit of measurement on the chart. While most of the best-known charts use candlesticks as markers, Renko charts use boxes or ‘bricks’ to indicate a trend.

Your Renko box size will be determined by you, depending on what parameters you want your chart to consider in a trend. For example, you might set your box size to 10 percentage points of that market. This means that every time the market goes up or down by 10%, a box will appear on your chart – and not before. It also means that Renko boxes will never appear side by side, but only at 45 degree angles above or below the previous box.

Let’s look at an example. Say you want to trade EUR/USD. You set your box size to 20 pips, which means that another box or brick will appear every time the EUR/USD moves up or down by 20 pips, regardless of how much time has passed.

It also means that these blocks will never appear in a straight line, but only ever at 45 degrees above or below the previous one. So, if EUR/USD moves down by 20 pips, your Renko chart will create a box 45 degrees lower than the previous one displayed.

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What types of Renko chart boxes can be used?

Just as there are different applications for Renko charts in trading, there are different ways to use Renko chart bricks to display the type of information you want to see. This’ll depend on the market you’re trading and your strategy. Here are some of the types of blocks that can be used:

• Price movement boxes tracking the underlying market set in pips, if trading forex
• The market’s price movement set in percentage points – in other words, by what percentage of its own value the market has moved
• Period close boxes, which track how much the market’s price has moved based on the closing price of whatever length of time you’ve set your box size to, eg daily
• Average True Range (ATR), which takes into account the range of that market over a certain time period, noting any gaps in the market’s movement – there can be many with Renko charts

Trading strategies for Renko charts

According to our senior analyst Shaun Murison, these beauties lend themselves well to many popular trading strategies – especially forex trading strategies. ’Renko charts as a form of price analysis lends itself to a number of common practices used in conventional price charting,’ he says.

1. Brick size as strategy

One of the most widely used techniques is the trend trading strategy, to identify market momentum. Here, your main weapon in your Renko trading strategy arsenal is your brick size. The bigger the brick size that you set for your Renko chart, the more your underlying market has to move in price for a brick to form.

For example, if your brick size is five points, the market must move by at least five points to show up on your chart at all. And, if the market’s direction changes (for example, a downturn when the price had been trending upward), then the price would need to go down by at least 10 points to show the new direction of the market.

This means that your first and most basic Renko strategy would be to use a bigger brick size. Many traders, particularly those using Renko charts for forex trading, use a brick size of 10 to 20 points. This’ll eliminate smaller fluctuations in price while still giving you information on any significant upsides or downsides.

While Renko charts work well for identifying trends, one downside of them when used in isolation is that there’s no real way to calculate the robustness of a trend other than looking at how long it lasts – which can be too retroactive for some traders.

2. Range trading strategy

According to Murison, Renko charts can be particularly helpful with a range trading strategy. ’If a range is present, then traders might use Renko charts to highlight breakout opportunities. So, Renko charts can be incorporated into range trading strategies,’ he says.

As your brick size determines the market movements that appear on your chart, you can use Renko charts with a range trading strategy. This is because, in range trading, the market moves between two ‘support and resistance’ price levels. By setting your Renko chart brick size accordingly, as well as setting well thought-out stop losses and limit orders, you can identify upward or downward market trends, using the simplicity of Renko charts to your advantage.

While this can be an effective Renko charts trading strategy, remember that its effectiveness is based on how well you manage to identify appropriate support and resistance levels. If your brick size and determined range is not a good fit for your market, range trading probably won’t work as well.

3. Breakout strategy

‘Renko charts can also be incorporated into a breakout strategy,’ says Murison. ‘Breakout strategies with Renko charts are particularly interesting because block sizes use Average True Range (ATR) in its measurement, and ATR is a volatility measurer, which is itself often used for breakout trading strategies,’ says Murison.

The breakout trading strategy is similar to range trading in that it also uses levels of support and resistance. However, the aim here is to use your Renko chart’s natural tendency to show market momentum to pinpoint the moment when the price will ‘break out’ of those levels. This strategy aims at opening your position early within a new trend and placing your stop-loss at the point at which the market breaks out.

Again, this strategy can be too hindsight-focused and retrospective for many traders, as it often requires a great deal of market knowledge and foresight to spot the breakout point before it occurs. Also, breakout strategies can be quite dependent on time, which is completely left out of true Renko trading charts.

Renko charts on ProRealTime

With us, you can use Renko charts on the ProRealTime platform – a sophisticated charting software that gives you a completely customisable trading interface and automated dealing experience.

ProRealTime is fully integrated with our platform – in fact, we’re the only CFD provider to offer ProRealTime.

However, if you use ProRealTime for algorithmic trading, remember that this can be problematic when using Renko charts. Again, this is because Renko bars don’t take timeframes into account.

How to access Renko charts with us

If you’d like to use Renko charts on our platform, you can access it via ProRealTime. Just follow these steps:

1. Create a live account with us
2. Log into the platform
3. Launch ProRealTime
4. Start dealing on ProRealTime

Renko charts summed up

• Renko charts are a type of trading chart, very different to better-known chart formats such as the candlestick, Heikin Ashi and others
• Instead of using candlesticks to track price movements, Renko charts use bricks or ‘blocks’ of the same size, as set by you
• This means Renko charts completely remove the element of time, focusing only on market trends and momentum
• There are several popular trading strategies that lend themselves well to Renko charts, such as trend trading, range trading and the breakout strategy
• You can trade with Renko charts with us on our ProRealTime platform