A Renko chart[1] (Japanese: 練行足, romanized: renkōashi, also written 練り足 neriashi) is a type of financial chart of Japanese origin used in technical analysis that measures and plots price changes. A renko chart consists of bricks (煉瓦, renga), which proponents say more clearly show market trends and increase the signal-to-noise ratio compared to typical candlestick charts.[2]
![](http://upload.wikimedia.org/wikipedia/commons/thumb/3/3c/Renko_chart_example.png/220px-Renko_chart_example.png)
Construction
Renko charting is similar to point-and-figure in that time doesn't play a role in Renko charts. Renko blocks (or bricks) are plotted using the following rules:[3][4]
- A brick size is determined, e.g. 10 points. All bricks are drawn to be of that size.
- Once the price surpasses the lower or upper border of the current brick by the brick size, a new brick is drawn either above or below the previous one — never on the same line.
- The new brick is always drawn farther to the right on the horizontal axis.
- If the price surpasses the previous brick by more than one chosen size, the respective number of bricks is plotted on the chart.
- Partial bricks are not plotted until complete brick size distance is covered by the price.
- Renko charts typically only use closing prices based on the chart time frame chosen. For example, if using a weekly time frame, then weekly closing prices will be used to construct the bricks.
Similarly to Kagi charts, Renko charts help chartists to cancel out the noise present on time-based charts, focus on important price levels, detect support and resistance, and identify market trends.[5]
References
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