Renko charts are a unique type of charting tool that filters out market noise and focuses solely on price movement. Unlike traditional time-based charts, Renko charts are constructed based on price changes, with each “brick” representing a fixed price movement (such as 10 pips). This makes Renko charts ideal for identifying trends and price patterns without the distraction of time or minor price fluctuations.

What Are Renko Charts?

A Renko chart is made up of bricks, where each brick represents a specific price movement, such as a certain number of pips or points in the market. Unlike candlestick or bar charts, Renko charts do not consider time intervals or volume; they only focus on price movement. The bricks are either:

• Bullish (upward): Formed when the price moves upward by the specified amount (e.g., 10 pips).
• Bearish (downward): Formed when the price moves downward by the same amount.

Renko charts are used to filter out the noise created by minor price fluctuations and focus more on the larger market trends, making them particularly useful for identifying trend direction and strength.

How to Set Up Renko Charts in Forex Trading

1. Choose the Brick Size:
   • The most important parameter when setting up Renko charts is the brick size. This defines how much the price must move before a new brick is formed.
   • For example, if you select a 10-pip brick size, a new brick is only formed once the price moves 10 pips in the chosen direction (up or down).
   • Smaller brick sizes provide more detail but may also capture more noise, while larger brick sizes smooth out market fluctuations but may miss some of the price action.
2. Select Your Currency Pair:
   • Renko charts can be applied to any forex pair, but they are most effective with pairs that exhibit clear trends, such as the major currency pairs (EUR/USD, GBP/USD, etc.).
   • Be sure to choose a pair with enough price volatility to make the chart meaningful.
3. Apply Renko Charting Software:
   • Most trading platforms (like MetaTrader 4/5, TradingView, or NinjaTrader) offer Renko charts as a built-in feature.
   • Once you select the Renko chart option, input the brick size and apply it to your chart.
4. Use Renko with Multiple Timeframes:
   • Use Renko charts on various timeframes to capture trends at different levels of detail.
   • Combining Renko charts with other time-based charts can give you a clearer picture of the overall market trend and help identify entry and exit points.

How to Use Renko Charts for Forex Trading

1. Identifying Trends:
   • Renko charts are great for identifying trends because they remove the noise created by smaller price movements.
   • If the chart is consistently showing a series of bullish (upward) bricks, it indicates an uptrend. Conversely, a series of bearish (downward) bricks indicates a downtrend.
2. Trend Continuation and Reversals:
   • Trend Continuation: If the price moves in one direction for several bricks, it indicates a strong trend. A pause or reversal (a shift from bullish to bearish or vice versa) may signal a change in the market direction.
   • Reversal Signals: A reversal in Renko charts is signaled by a change in brick direction. For example, if you have been in an uptrend with a series of bullish bricks, a shift to a bearish brick indicates a potential trend reversal.
3. Support and Resistance:
   • Renko charts help traders clearly identify support and resistance levels. Price consolidation often appears as a horizontal series of bricks, which can help define key support or resistance levels.
   • When the price breaks through these levels, it often signals a potential breakout or continuation of the trend.
4. Entry and Exit Points:
   • Entry Points: Enter buy trades when a new bullish brick is formed, and enter sell trades when a new bearish brick forms. This simple approach helps capture larger market moves.
   • Exit Points: Consider exiting a trade when the price forms an opposite brick (e.g., from bullish to bearish), or when the trend shows signs of slowing down, such as a series of small bricks or price consolidating in a tight range.
5. Combining Renko with Other Indicators:
   • Moving Averages: Use moving averages (e.g., 50-period or 200-period) on a Renko chart to confirm the trend direction. When the price is above the moving average, it suggests an uptrend, and when it is below the moving average, it suggests a downtrend.
   • RSI or MACD: Combine Renko charts with momentum indicators like RSI or MACD to confirm overbought or oversold conditions and potential trend reversals.
   • Support and Resistance Levels: Pair Renko charts with horizontal support and resistance lines to identify key levels for breakout or reversal opportunities.

Advantages of Renko Charts

1. Clear Trend Identification:
   • Renko charts are highly effective for identifying trends, as they filter out market noise and focus on price movement.
2. Noise Reduction:
   • By ignoring small price movements that don’t fit the predetermined brick size, Renko charts provide a clearer picture of overall market direction.
3. Simple and Clean:
   • The simplicity of Renko charts makes them easy to read, with fewer distractions compared to time-based charts.
4. Useful for Trend Traders:
   • If you trade based on trends, Renko charts are an excellent tool for spotting and confirming trends while avoiding minor price fluctuations that may lead to false signals.

Challenges of Renko Charts

1. Lagging Indicators:
   • Renko charts may lag behind the current price action because a new brick is only formed after the price moves a specified distance. This means you may miss out on the very start of a new trend.
2. Not Suitable for Ranging Markets:
   • Renko charts are less effective in sideways or range-bound markets, where the price doesn’t move much in a clear direction. In such markets, Renko charts can become erratic or provide misleading signals.
3. Misses Some Price Action:
   • Due to the brick size setting, small price moves may be ignored. This can be a disadvantage if you’re trading small-time fluctuations or scalping.

FAQs

What is the best brick size for Renko charts in forex?
The best brick size depends on the currency pair and timeframe. A smaller brick size (e.g., 5-10 pips) may work well for volatile pairs, while a larger size (e.g., 20-50 pips) might be better for less volatile pairs.

Can Renko charts be used on all timeframes?
Yes, Renko charts can be applied to any timeframe. However, they are most effective when used with higher timeframes (e.g., 1-hour, 4-hour, daily) to capture significant trends.

Are Renko charts suitable for scalping?
Renko charts are generally not ideal for scalping because they miss small price movements. They work best for traders looking to capture larger market moves over a longer duration.

How do I confirm breakouts using Renko charts?
Look for significant price movements beyond a series of bricks, indicating a breakout. Combining Renko charts with other tools like volume analysis or momentum indicators can help confirm the breakout.

Can Renko charts be used with other indicators?
Yes, Renko charts work well with moving averages, RSI, MACD, and other indicators. Combining them can enhance the accuracy of your signals and provide a more comprehensive analysis.

Conclusion

Renko charts are an effective tool in forex trading for identifying clear trends and filtering out market noise. They are especially useful for traders focused on trend-following strategies, as they help confirm the direction of price movement without the distraction of minor fluctuations. While Renko charts may not be suitable for every market condition, especially in ranging or choppy markets, they offer significant advantages for traders looking to capture strong trends with a clean and simple approach. By combining Renko charts with other technical indicators, traders can enhance their decision-making and improve their trading accuracy.