Getting started with Renko charts

If you’re familiar with using Japanese candlesticks, Renko charts can feel like they’ve turned your trading world upside down and given it a good shake.

If you’re not yet comfortable around Japanese candlesticks, then Renko can look very appealing as a simplified way to show price moves.

Either way, these simple building blocks of prices tear up the usual rule-book and can revolutionize your trading. But it’s vital to know how they work – AND how to take advantage of their unique benefits.

The main benefit of Renko charts is that they eliminate pretty much all the noise from our charts and pare them down to basics. They remove the element of time, just focusing on how the market has moved, up or down.

How Renko charts are built

Renko bars (or bricks) are not built out of time units, but out of price moves. Each bar represents a move up or down of a fixed number of pips or points. You set that parameter yourself, and every brick will represent the number set.

For example, if you want to set your Renko brick to 10 pips, if the price moves up by 10 pips, you’ll get a green bar. If the price moves down by 10 pips, you’ll get a red bar.

The amount of time it takes for a candlestick to form is irrelevant on a Renko chart – it could move that 10 pips in seconds, or take all day. All the push and pull between buyers and sellers is removed – we just see the move.

All noise is eliminated

Here’s the price chart for EURUSD in April, shown on 4-hourly candlesticks, and on Renko …

If you’re very used to looking at candlesticks, it can be tricky to get your head around Renko – time feels like it’s fundamental to the way we look at charts. But it’s good to question how important that time element really is? How much does it matter?

Rather than concern ourselves with what’s happened within each 4-hour period, instead we’re just seeing when the price moved up, and when it moved down.

Clear trends

Trends and pullbacks are much easier to see on a Renko chart.

Many traders take one look at the lovely long up and down trends on Renko charts and think this will be answer to all their trend-following needs! This may be true, but (as always) there’s some nuance involved …

Bear in mind, that you need a swing of double the brick size for a change of direction on Renko charts …

This means that if you simply buy on a green bar, and sell of a red bar, you’ll quickly see your profits knocked out in any sideways price action.

But there are some really smart – and incredibly simple – ways to use Renko charts, which I want to show you.

How to apply Renko charts

It used to be the case that applying Renko charts to your platform was only for tech-heads, but now it’s easy to do with a few clicks of your mouse.

On the trading platform I use, Renko charts are one of the options on the ‘Display’ drop-down menu …

Applying this will turn your candlesticks in to Renko bars, but you’ll also need to specify the number of pips/points for each brick. You do this by clicking on the little cog symbol next to the Renko option.

The way this information is entered will depend on your platform. Some will require the number of pips, or some will want you to enter a price move. So, if you want 10 pips per brick, you might enter ‘10’ or you might enter ‘0.0010’ to represent that interval – check the brick size on your chart to ensure the settings are what you want.

Bear in mind, too, that pips have different values on JPY pairs, and if you’re trading 10-point bars on FTSE100 – the same settings might give you wildly different results on an FX chart.

What’s important is that you check the size of your Renko bar on the y-axis of your chart to check it fits with what you’re expecting.

Pros and cons of Renko charts

• The big win with Renko charts has to be the noise elimination. Trends and pullbacks are much easier to spot.
• We can throw out trend lines & Fibonacci levels. This may be a con for you – but for a lot of traders, it’s a relief!
• Renko bars aren’t obviously adaptable across different markets – you’ll need to adjust your bar size to fit the market you’re trading. And what works in a quiet period won’t be suited to more volatile times.
• Because they aren’t constrained by time, there’s no ‘best time to check’ your Renko charts – you can’t know when a bar will finish, because that’s determined by price action rather than time. This means that we either need automated trading, or to be glued to our screens.
• Without the candlestick shape, we can’t see the market sentiment as buyers and sellers fight it out in a time period. But it’s not always the case that this extra information helps our trading. Watching charts can be like being stuck in a social-media news cycle, where we’re watching the detail of who said what, rather than actually hearing the news.

So, how do you trade Renko charts?

Okay, you’ve got your beautiful clean Renko charts – how do we use these to make some profits?

Technical indicators don’t work in the ways we’re used to with these charts, but they can still be usefully applied. This is like learning about indicators all over again.

Indicators that you hated on candlestick charts, may be just what you need on a Renko chart.

Moving averages, RSI, Stochastic – all these tools work in different ways on these time-free platforms. I’ll be exploring how to apply them in my next Renko post.

Until then, please take a look at Renko charts and share any indicators you’ve found to work well with them, or any you’d particularly like me to explore.

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