Understanding Renko charts
CONTENTS:
What are Renko charts
Renko charts only measure price movement. The word "Renko" is derived from the Japanese word "renga," which means "brick." Not so coincidentally, renko charts are constructed from a series of bricks (or bars), whose creation is determined by fluctuations in price.
Renko's brick size is predetermined by the user. Once the price moves more than the user-defined brick size, either above or below the most recent brick, a new brick is added to the chart.
For example, if the brick size is set to two points and the last brick covers prices from $52 to $54, a new brick won’t be formed until the price closes at or above $56, or at or below $50. If the price closes between $56 and $58, this new brick will be placed at $56.
There are two rules regarding brick placement:
- Bricks will always have their corners touching
- There can never be more than one brick in any vertical column
Brick types
There are four different brick types generated by Renko charts:
- Up bricks: Bricks that form above the previous brick
- Down bricks: Bricks that form below the previous brick
- Projection up bricks: With an intraday chart interval, a potential up brick is projected based on the current price (before the actual closing price is set)
- Projection down bricks: With an intraday time interval, a potential down brick is projected based on the current price (before the actual closing price is set)
Brick calculation methods
There are three different methods for calculating bricks:
- Average True Range (ATR): Uses the values generated by the Average True Range (ATR) indicator. The ATR is used to filter out the normal noise or volatility of a financial instrument. The ATR method automatically determines a good brick size. It calculates what the ATR value would be on a regular candlestick chart and then makes this value the brick size
- Traditional: Uses a user-predefined absolute value for brick size. New bricks are only created when the price movement is at least as large as the predetermined brick size. The benefit of this method is that it is very straightforward and it’s easy to anticipate when and where new bricks will form. The downside is that selecting the correct brick size for a specific instrument requires some experimentation. A common approach is to select a brick size that is about 1/20th of the current value of the instrument
- Percentage (LTP): The box size is based on the percentage defined by the user. This particular percentage is applied to the most recent closing price to calculate the box size, and then rounded to the nearest minimum tick size and applied consistently across all bars. This calculation approach is subject to repainting
Accurate Renko brick calculation requires tick data. TradingView uses the chart’s resolution close value or OHLC value.
For example, a 10-minute Renko chart will use 10-minute closes to generate bricks. Only when the 10-minute interval has expired are all produced bricks locked in Renko history. Therefore, smaller chart intervals will produce bricks that more accurately parallel tick-based Renko bricks.
Projection bars are necessary while the current chart interval has not yet expired.
For example, during a 10-minute interval, one or more projection bricks may be visible as the current close moves toward the next brick threshold and beyond. Projection bricks only occur on real-time data, between chart interval values. This data is lost when the chart is reloaded. If your Renko chart shows incorrect values, you can find the answer in our Knowledge base.
How to use Renko charts
Support and resistance levels: Frequently, when using Renko charts, trading ranges appear when bars are generated between levels of support and resistance.
Breakouts: Occur when bars begin to generate in a defined direction after a period of trading within a support-and-resistance-bound range.
Overbought/oversold: A good example of using additional indicators within a Renko chart to identify trade signals would be using the RSI together with Renko bars to define overbought or oversold levels.
! Note: Renko brick prices are inherently synthetic because of their nature and, therefore, they don't reflect market prices at any precise moment in time, as normal bars do. While Renko bricks may provide a useful interpretation of price activity in discretionary trading, using them to backtest is not recommended. This is because orders there must reflect actual market prices at a specific time. Backtesting orders filled at Renko chart prices will inevitably be inaccurate. If your strategy produces unrealistic results on non-standard chart types, you can find the answer in our Knowledge base.
Renko charts settings
- Up Bars: Change the color and outline of up bars
- Down Bars: Change the color and outline of down bars
- Projection Up Bars: Change the color and outline of projected up bars
- Projection Down Bars: Change the color and outline of projected down bars
- Source: Can choose between close and OHLC
- Box Size Assignment Method: Can choose between ATR brick calculation method, traditional brick calculation method and percentage (LTP) brick calculation method
- ATR Length: If ATR is the selected brick calculation method, this value will set the ATR look-back period. 14 is the default
- Box Size: If traditional is the selected brick calculation method, this value is the user defined brick size
- Percentage: If percentage (LTP) is the selected brick calculation method, this value will specify the percent of the last trading price to be used as the box size. 1% is the default
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