What is RENKO Trading

Renko is a chart type, developed by the Japan. The concept of Renko came from Brick in Japanese, which gets constructed on price movement. The chart looks like a series of bricks, look below.  Renko brick can be of different fixed sizes, depends on trader’s need. A new brick is created when the price moves up or down to that brick size price amount. Each block is positioned at a 45-degree angle (up or down) to the prior brick. An up brick (Uptrend) is typically colored green, and a down brick (Downtrend) is typically colored black or red.

In renko chart there is always a fixed brick size. in candlestick, the candle size varies based on price movement, but in Renko, the brick size doesn’t vary, it is predefined and fixed, if price moves one direction in multiple of brick size, then multiple brick shall form.

Secondly each brick formation time varies based on price movement whereas a single candlestick is always takes same time to form. Hence Renko is not time dependent and candlestick chart is time dependent. In the below image we can see how RENKO brick formation differs from traditional candlestick chart formation. Where in 25 minutes One RENKO brick is still forming but Six 5Min Candlestick got formed.

Backtesting on RENKO is not a good idea as this is not dependent on time, similarly as bricks are of same size and forms with different duration of time, its always advisable to trade using Tick data for RENKO chart if a trader is trading using Auto trade. Failing which repainting of signal might cause erroneous trading. In the similar line  higher timeframe RENKO chart is again an illusion which many traders don’t realize and the chart looks fascinating where it looks as no loss strategy.  But as the chart is of higher timeframe, there is higher possibility of false brick formation and missing trading signals.

The below image shows a Renko chart of Brick size 1 (Not advisable, just for display)

Please check our Renko Trading System to get an idea how RENKO system works.