In a LinkedIn article on Japanese charting techniques, Stephen Hoad, who runs TheStopHunter.co.uk makes the case for why Renko charts still deserve a place in the modern trader’s toolkit. Rooted in eighteenth century Japan, they’re far older than most of the indicators cluttering today’s charts.. and arguably more useful.
What are Renko charts?
The name comes from the Japanese word for bricks, “renga,” and that’s what you’re looking at on the chart. In technical analysis, Renko charts use these “bricks” to highlight price movement differently from time-based charts.
Instead of plotting price against time, you’ll find that plotting movement against price is the defining feature of Renko chart types.
A new brick only appears when price moves by a predetermined amount — anything less is ignored. The result is a chart stripped of noise, which is a key advantage of using this approach.
Setting up a Renko chart involves two decisions:
- What price data to use, and
- How large to make the bricks.
The close gives a cleaner picture; a high/low range produces more bricks and more signals. On brick size, basing it on the ATR (Average True Range) from a standard candlestick chart is more objective than a fixed value and then divide it for more signals, multiply it for fewer. In summary, Renko chart setup can be flexible based on your trading preferences.
Reading the signals
When the brick colour changes (bullish to bearish or vice versa) that’s your cue. The caveat, as with any trend-following tool, is whipsaws: colour changes that reverse too quickly and catch traders on the wrong side. This nuance is important in all trading systems, and it is equally important in Renko chart strategies.
The WTI Crude Oil Renko chart above demonstrates the approach clearly. Using a 30-period ATR on close, key support and resistance levels print far more cleanly than they would on a standard candlestick chart, and trend line breaks are easy to identify without the surrounding noise. Anyone trading with Renko charts can appreciate the clarity this method provides in spotting trends.
