The principle of candlestick construction
In Japanese, Renko means “quiet path” or “brick” from the English Renga. A new “brick” appears on the charts only if the price movement has exceeded the set values. Two parameters are used: Bar size or threshold (box size). The number of points that the price must pass for a new Renko “brick” to appear.
Price for calculating charts. Close prices are used by default. On lower timeframes, Highs/Lows can be used. An ascending Renko bar is displayed if the difference between the previous maximum and the current price is equal to or greater than the threshold, for a descending one we consider the difference in relation to the minimum.
All bars are the same size if the price has passed the value above the threshold. As with strong trends, multiple Renko bars are displayed. Recall that time is not taken into account, therefore, the longer the price does not move or goes in a narrow sideways range, the greater the lag from candlestick charts.
New Renko bars are displayed at an angle of +45 degrees for ascending and -45 for descending ones. Once they appear on the chart, they are not deleted or redrawn.
Benefits of Renko charts for trading
As you can see, the process of technical analysis of the market is simplified. For example, on the one-minute Forex charts, a trading day consists of 1440 Japanese candlesticks, at the same time, using the Renko method with a threshold of 10 points, we get an average of 20-40 bars. You can trade similarly to moving averages with long periods – a change in direction will signal the beginning of a new medium-term trend.
Renko chart advantages
Almost all innovations in the visual display of price changes are aimed at simplifying trading. Traders strive to improve efficiency and reduce the risk of errors when opening deals. Renko chart provides such an opportunity. Despite the construction of “bricks” based on Japanese candlesticks, this method is welcomed as simpler.
- Renko, like other charts that do not take into account the time factor, is built based on the closing prices (Close) and is clearly more informative – symmetrical candles allow you to see the “real” trend and strong support / resistance levels.
- There is practically no market “noise” on the charts, and thus the local highs / lows and trend reversal points are more clearly defined on the Renko.
- If the Renko chart changes color, it will be a buy or sell signal. Their appearance can be used to confirm other indicators, especially lagging moving averages.
- Trend indicators, overbought / oversold oscillators, complex trading strategies on Renko better filter false signals, especially on M1-M10 timeframes.
Trading strategies on Renko charts
Short-term trading methods have some common features. This is a small timeframe (from M1 to M30), refusal to work during the publication of strong news like Nonfarm in the USA, entering the market at the points of trend change. Thanks to this approach, the trader reduces the risk of mistakes. When the process of opening / closing deals follows the established rules, the chances of making money increase.
An example of a trading strategy on Renko charts:
- A contrasting color scheme is selected. For example, red for a downtrend and green for an uptrend.
- The M1 timeframe is set on the required currency pair.
- The Renko Live Chart indicator opens.
- The parameters are specified in the settings: RenkoBoxSize equal to 5, and RenkoTimeFrame = 2.
Additional indicators Slope Directional Line and MACD are added to the chart.
The trader watches the market until the appearance of a “brick” with the opposite color (if it was red, then they expect green, and vice versa).
BUY abd sell signals on renko chart
As soon as a trend reversal signal appears on the Renko Live Chart, it is confirmed on the others. For example, if after a series of green elements a red one is formed, the envelope of the Slope Directional Line indicator turns yellow, and on MACD the green line goes under the red one – this is a sell signal (Sell). When the opposite signal arises: red changes to green, the SDL line is blue, and the green MACD is above the red one, a Buy order is opened.