Renko Chart: Definition, What It Tells You, Uses, and Example

What is Renko Chart?

A Renko chart is a technical analysis tool originating from Japan that displays price movements using fixed-size "bricks," ignoring time and minor fluctuations to highlight significant trends. Unlike traditional charts, Renko focuses purely on price action, making it easier to spot support and resistance levels and market direction.

This method differs from time-based charts such as candlestick charts by filtering out market noise and emphasizing clearer trend signals.

Key Characteristics

Renko charts have distinct features that make them valuable for traders:

• Fixed Brick Size: Each brick represents a set price movement, which you can customize based on asset volatility.
• Trend Focused: Consecutive same-color bricks reveal strong uptrends or downtrends, simplifying decision-making.
• Noise Reduction: By ignoring minor price changes, Renko charts improve the signal-to-noise ratio compared to time-based charts.
• Time-Independent: Bricks form only when price moves enough, not based on time intervals.
• Visual Clarity: The angled bricks clearly illustrate trend direction and reversals without the clutter of intraday fluctuations.

How It Works

Renko charts build bricks only when the price moves by a user-defined amount, called the brick size, from the previous brick's close. This creates a stair-step visual where each new brick attaches diagonally, making trends easy to identify.

Upward price moves add green or white bricks, while downward moves form red or black bricks. Small fluctuations that don’t meet the brick size threshold are ignored, helping you focus on meaningful price changes. This approach works well with assets of varying volatility, such as cryptocurrencies detailed in our best crypto trading platforms guide.

Examples and Use Cases

Renko charts are practical for traders aiming to simplify market analysis and identify clear trends or breakouts:

• Airlines: Tracking stocks like Delta and American Airlines with Renko charts can help spot sustained price movements by filtering out short-term volatility.
• Growth Stocks: Applying Renko to high-growth stocks can reveal entry and exit points during strong trends.
• Range Trading: Renko charts highlight support and resistance zones effectively, useful for strategies based on the range concept.

Important Considerations

While Renko charts enhance trend clarity, they have limitations such as delayed signals due to ignoring smaller price moves. Choosing an appropriate brick size is critical—too small increases noise, too large may miss early reversals.

Also, Renko charts do not display volume or intra-brick price details, so combining them with other tools like the Ichimoku Cloud or Darvas Box Theory can provide more comprehensive market insights.