Technical Analysis: Renko – Definition, How it Works, Types, Calculation, and Trading

Renko charts offer traders a clean and straightforward way to visualise price movements, removing the distractions of time-based noise. Unlike traditional candlestick charts, Renko focuses solely on significant price shifts, using uniform “bricks” to represent trends. In this guide, we’ll explore the mechanics of Renko charts, their practical use in trading, and how to enhance them with popular technical indicators. Whether you’re a beginner or seasoned trader, understanding Renko can sharpen your market insights and improve your strategy.

What is Renko?

Renko charts, inspired by the Japanese word “renga” meaning “brick,” offer a simplified way to visualise price action by focusing solely on price movements rather than time. Unlike traditional charts that plot every price tick within fixed time intervals, Renko charts build a new “brick” only when the price shifts by a predefined amount. This structure, originally developed by Japanese traders, strips away market noise and provides a cleaner view of the market’s direction.

How do Renko Charts work?

The core concept behind Renko charts lies in their blocky, brick-style layout. Each brick represents a fixed amount of price movement, known as the “box size.” Bricks form only when price movement exceeds this set value, making minor fluctuations irrelevant and allowing trends to appear more clearly.

For example, with a box size of $5, an upward brick is added only when the price climbs $5 above the last brick’s close. Similarly, a downward brick forms when the price drops $5 below the previous level. If the price remains within that $5 range, no new brick appears. This method offers a refined, visual approach to spotting meaningful trends and directional strength, ideal for traders who favour clarity over noise.

What Do Renko Charts Tell You?

Renko charts highlight market direction by visualising only significant price changes. As each brick represents a threshold move, this chart type naturally filters out insignificant price shifts, allowing traders to focus on core trends and potential reversals.

A consecutive string of green or white bricks suggests bullish momentum, while a series of red or black bricks signals bearish sentiment. When the colour shifts, traders are often alerted to a possible trend reversal, making it easier to time entries and exits. Additionally, Renko charts are especially effective at identifying support and resistance zones, as bricks tend to cluster around key levels.

Because they aren’t cluttered by erratic movements, Renko charts are well-suited for strategies built around momentum, breakouts, and trend-following. During volatile periods, they help eliminate distractions, allowing traders to stay focused on the broader market picture.

What is Renko in MT4?

In MetaTrader 4 (MT4), Renko charts serve as a powerful alternative to traditional time-based charting methods. Available through custom indicators, these charts allow traders to define the box size manually and choose colours to represent upward or downward price movement.

Once configured, the chart updates only when price changes exceed the set threshold. Green or white bricks typically indicate upward price momentum, while red or black bricks show downward movement. This colour-coded visualisation enables traders to make faster, clearer decisions, especially useful in fast-moving or highly volatile markets.

Using Renko in MT4 is popular among traders who want to simplify their charting environment, minimise false signals, and maintain focus on major price shifts. With its clean layout and practical application, Renko has become a go-to tool for many technical analysts within the MT4 ecosystem.

What are the Advantages of the Renko Chart?

Renko charts offer several distinct advantages for traders looking to cut through market noise and focus on meaningful price action.

One of the most compelling benefits of Renko charts is their ability to filter out minor, insignificant price fluctuations. By plotting only substantial price movements, they deliver a clean and easy-to-read chart that simplifies trend analysis. This clarity makes it easier for traders to identify key market movements and respond confidently.

Another strength of Renko charts is their effectiveness in highlighting support and resistance zones. Since each brick represents a fixed price increment, patterns such as repeated highs or lows become more obvious. For example, if the price consistently reverses near the same level, Renko bricks will visually reflect this, helping traders identify important turning points with ease.

Renko charts also excel at visualising trend strength. A sequence of consecutive green bricks suggests sustained bullish momentum, while successive red bricks indicate a bearish trend. Colour changes between bricks act as immediate visual cues, helping traders spot potential reversals and time their entries or exits more effectively.

What are the Disadvantages of Renko Chart?

Despite their strengths, Renko charts are not without limitations, and understanding these drawbacks is essential for proper use.

One major limitation is the delayed nature of signal generation. Since a new brick only appears after a defined price movement is completed, traders may receive signals later than they would with time-based charts. This lag can sometimes result in missed opportunities or late entries into a trade.

Choosing the right box size is also critical. If the box size is too large, traders might overlook significant price movements. On the other hand, a box size that’s too small can introduce unnecessary noise, defeating the chart’s purpose. Selecting an appropriate box size—whether fixed or dynamically set using indicators like ATR—is key to maximising Renko’s effectiveness.

Additionally, Renko charts provide limited insight during low-volatility periods. Since no new bricks are formed until the price moves by the predetermined amount, a flat or consolidating market may appear empty or stagnant on a Renko chart. Traditional time-based charts, in contrast, still offer valuable data during these phases.

Lastly, Renko charts remove time as a factor. While this simplifies price analysis, it also means important time-based events, such as economic news releases or intraday patterns, may be overlooked. This can be a drawback when such events have a major influence on price action.

What is the Best Indicator for Renko?

While Renko charts are powerful tools on their own, combining them with key technical indicators can significantly improve trade timing and accuracy. Some of the best indicators to use alongside Renko charts include:

Moving Average Convergence Divergence (MACD):
MACD tracks the difference between two exponential moving averages—typically the 12-day and 26-day EMAs, and provides bullish or bearish crossover signals. When the MACD line crosses above the signal line, it suggests bullish momentum; a crossover below signals bearish pressure. These signals can confirm Renko-based trend reversals or continuations.

Relative Strength Index (RSI):
RSI measures the speed and change of price movements on a scale from 0 to 100. Readings above 70 indicate overbought conditions, while levels below 30 point to oversold situations. When paired with Renko charts, RSI can confirm whether a trend is likely to continue or reverse.

Average True Range (ATR):
ATR is commonly used to set dynamic box sizes in Renko charts. It measures market volatility, allowing Renko bricks to adjust in size based on current conditions. This makes the chart more adaptive and accurate, especially in markets with shifting volatility levels.

Bollinger Bands:
Bollinger Bands consist of a central moving average and two outer bands that respond to price volatility. On Renko charts, a breakout above or below these bands can signal a potential trend acceleration or reversal. This indicator is especially useful for spotting momentum changes.

Stochastic Oscillator:
This momentum indicator compares the current closing price to a recent range. Values above 80 suggest overbought conditions, while levels below 20 signal oversold levels. When used with Renko, it can provide timely confirmation for trade entries or exits.

Conclusion

Renko charts provide a powerful alternative to traditional charting methods by focusing exclusively on price action. Their ability to highlight clear trends, filter out market noise, and define support and resistance levels makes them a valuable tool for traders in all markets. While Renko charts come with some limitations, such as signal delay and reduced time sensitivity, combining them with indicators like MACD, RSI, or ATR can significantly improve their effectiveness. Whether you’re trading stocks, forex, or crypto, Renko offers a simplified yet highly effective way to navigate the markets. Ready to refine your trading strategy? Start experimenting with Renko charts on TradeSmart today.