Renko Chart

What Is a Renko Chart?

A Renko chart is a type of technical analysis chart that plots price movement using bricks of equal size rather than fixed time intervals. Each brick represents a set price change, and a new brick is added only when price moves far enough beyond the previous one. Unlike a candlestick chart, which shows every period regardless of how much price moved, a Renko chart ignores time altogether.

The name comes from the Japanese word for brick. Traders often use these charts to get a cleaner view of price direction.

How a Renko Chart Works

The trader first chooses a brick size, usually expressed in price points. Some traders set this manually, while others base it on a measure of recent price range such as average true range. Bricks are then drawn according to these rules:

• An up brick forms when price rises by the full brick size above the top of the last brick.
• A down brick forms when price falls by the full brick size below the bottom of the last brick.
• Price moves smaller than one brick size are ignored, so no brick is drawn.

Chart colors usually distinguish up bricks from down bricks. A common convention requires price to move by two brick sizes against the current direction before a reversal brick is drawn, which helps reduce false signals.

Example and Uses

Suppose a stock climbs steadily with several small swings. On a time-based chart, those swings may look noisy. On a Renko chart with a larger brick size, the minor fluctuations disappear, and the chart shows a series of rising bricks. Traders often look at runs of bricks in one direction or changes in brick color to gauge trend strength. They may also watch for areas where bricks repeatedly stall as possible support and resistance levels.

Advantages and Limitations

Renko charts remove much of the minor price noise and make trends easier to see. Because they are not tied to time, periods of quiet trading and fast price movement look different in a useful way. However, they discard the time axis, so users cannot see how long a move took or the trading volume behind it. Brick size is also a subjective choice, and different settings can produce very different-looking charts. Renko charts reflect past price action and do not predict future moves.