Renko charts

A Renko chart is a type of price chart created by bricks that move up or down from the previous brick at a 45-degree angle. Bricks are never directly beside one another. The user of the Renko chart determines the brick size for the chart, which then determines when a new brick will form.

As an example, let’s analyse the below Euro 50 Index price chart. If a 35-brick size is chosen, this means that the price needs to move 35 points from the closing price of the prior brick in order to form a new brick in the current direction. Since bricks can’t form beside each other, the price needs to move 70 points to form a brick in the opposite direction. Only moves of 35 points, in this case, are highlighted by the bricks. Moves smaller than 35 points (from the previous brick) will not form new bricks.

Renko charts tend to filter out small price movements. This chart type is therefore good at highlighting trends and can even be used as a type of trailing stop-loss​​.

For example, the above chart shows an extended uptrend from the middle of May into early June. At no point did the Renko chart reverse. A trader holding this trade could have profited 385 points (11 x 35) before the first red brick occurred, which could typically provide an exit signal, as the downtrend had then begun.

Following this, there was an extended drop in October, which could signal to traders to short their positions and avoid buying. This was followed by a strong uptrend in November, providing steady returns for anyone holding a long trade through all of the green bricks.

There is also a drawback, though. There are times where the Renko chart appears very choppy between June and October. Attempting to buy and sell based on changes in colour or direction during this period could possibly result in frustration and losses. Therefore, Renko charts are best used in conjunction with price action analysis and other trading strategies as opposed to being used completely on their own.

Heikin Ashi charts​​ differ from Renko charts in that they collect an average of recent price movements, whereas Renko charts focus on the greater trend. This type of candlestick chart incorporates prior candle prices to come up with an average price that appears smoother than traditional candlesticks.

The screenshot from our platform below shows the difference between these chart types. On the left, the Renko brick size is $1.50 and shows five months of price action. The Heikin-Ashi chart on the right also shows five months of price action in crude oil.

Candlestick charts focus more on timeframe and small price details than Renko charts. A new candlestick will form at every time interval, regardless of how far the price moves. For example, on a daily candlestick chart​​, assuming there was at least one transaction, a candle will form on that day, showing its high, low, close, and open prices. Renko charts don’t show the high, low, close, and open of each trading day, and they also don’t form a new brick at every time interval. A new brick is only formed when a minimum movement threshold is reached or exceeded.

The price chart below shows two cotton contracts. The one on the left uses a Renko brick size of 1.00, and the chart on the right uses daily candlesticks.

Traders can incorporate Renko charts into their own trading strategy​​. Here are some ways to do so:

To utilise Renko charts on our Next Generation trading platform, select a trading instrument from more than 10,000 that we have available in the product library. You can spread bet or trade CFDs on forex, commodities, shares, indices, ETFs and treasuries. Register for an account to get started.

You can filter by chart type by clicking on the chart type button and selecting Renko. As you can see in the screenshot below, the chart can be further set to Buy, Mid or Sell. This refers to the price that the product can be bought or sold at, so if you are looking to buy, you could select the Buy view, and if you are looking to sell, you could select the Sell view. Mid is the mid-point between the buy and sell prices.

While our MetaTrader 4 (MT4) platform does not offer Renko charts as an automatic built-in feature, it does have a library where users can download third-party software and indicators. Searching for a Renko chart indicator in the “Code Base” tab of MT4 reveals several options. For example, you can select to make the Renko chart appear like an indicator below the main charting area.

As always, traders should exercise caution when using third-party software on MT4, since the market and coding knowledge of the writer is unknown. Each downloadable Renko chart indicator will have its own instructions and settings. To learn more, open an MT4 account.