What Is a Renko Chart?

What Is a Renko Chart?

Let me explain what a Renko chart is directly to you. It's a charting method developed by the Japanese, focusing solely on price movement instead of combining price with fixed time intervals like most other charts do. The name likely comes from 'renga,' the Japanese word for bricks, because the chart resembles a series of stacked bricks. Each new brick forms when the price shifts by a specific amount, positioned at a 45-degree angle to the previous one, either up or down. Typically, upward bricks are white or green, and downward ones are black or red.

Key Takeaways on Renko Charts

Renko charts consist of these bricks angled at 45 degrees, and importantly, consecutive bricks never sit side by side—they stack directionally. You can set the brick size to any value, like $0.10, $0.50, or $5, which we call the box size; alternatively, base it on the Average True Range (ATR) for a dynamic approach. While there's a time axis, it's not uniform—bricks form based on price action, so some might take longer than others depending on how quickly the price hits the required movement. This setup filters out market noise, allowing you to see trends more clearly by ignoring moves smaller than the box size. Remember, Renko charts usually rely on closing prices from your chosen timeframe, such as weekly closes for a weekly chart.

What Does a Renko Chart Tell You?

Renko charts are built to cut through minor price wiggles, helping you zero in on major trends. The trade-off is that you lose some price details due to the straightforward brick structure. Start by picking a box size that matches the price movement scale you're interested in—for a stock, maybe $0.25, or for currency, 50 pips. Then, the chart adds a brick in the next column only when the price exceeds the previous brick's top or bottom by that box size.

Take a stock at $10 with a $0.25 box size: if it climbs to $10.25 or more at close, a new up brick appears. It won't draw if it only hits $10.24. Once drawn, bricks stay put. If it goes to $10.50, another brick follows. Bricks don't draw adjacent; for a drop back to $10.25, no down brick appears next to the up one—you'd need a fall to $10 for a down brick below.

You might use a fixed box or ATR, which adjusts with volatility. The time axis exists but isn't fixed; one brick could form over months, others in a day, unlike timed candlesticks. Adjust box size for smoothness—smaller boxes mean more swings and earlier reversals, larger ones reduce noise but delay signals. These charts shine for spotting support and resistance with less clutter, letting you ride strong trends until an opposite brick forms. Signals often come from trend shifts, like selling on a red brick after white ones, or buying on a white after a brief red pullback in an uptrend.

Example of How To Use Renko Charts

Consider a stock in a strong uptrend with a $2 box size, using closing prices only—ignoring highs, lows, and sub-$2 moves. You see a brief pullback as a red brick, but green bricks resume. In this uptrend, that's your cue to go long, exiting on the next red brick. Later, a downtrend emerges; wait for a green pullback brick, then short on the next red, aligning with the downtrend, and exit on an up brick. These are basic guidelines—you might require two or more bricks in a direction before acting.

The Difference Between Renko Charts and Heikin Ashi Charts

Heikin Ashi charts, also from Japan, can look similar to Renko with their sustained up or down boxes emphasizing trends. But while Renko uses a fixed or ATR-based box size, Heikin Ashi averages the open, high, low, and close from current and prior periods, making each candle vary in size to reflect average price. Both are great for trend spotting, but they operate differently.

Limitations of Using Renko Charts

Renko charts lack the detail of candlesticks or bars since they ignore time and show long ranges as single bricks, which might hide what happened inside. They use only closes, omitting highs and lows that could vary widely, reducing noise but potentially delaying alerts on big breaks—leading to larger losses. That's why you should pair them with stop-loss orders, not rely on signals alone. Designed for trends, they can give false early color changes, causing whipsaws, so always combine with other technical analysis.

How Do You Set Up a Renko Chart on Thinkorswim?

If you're using Thinkorswim from Charles Schwab, switch from default candlesticks easily. Go to Time Axis Settings, select Range under Aggregation type, choose Renko Bars, and set the price range to your box size.

How Do You Set Up a Renko Chart on TradingView?

For TradingView, you'll need a paid subscription. From the chart menu in the top bar, scroll to Renko, then hit settings to pick your box size.

How Do You Set the Box Size of a Renko Chart?

Choose the best box size based on your time horizon, risk tolerance, and goals. Larger sizes suit long-term trading but miss small moves that add up, increasing risk; smaller ones capture more but add noise.