Renko bars are a type of charts that are unique in the way price is charted. Renko bars are unique because they are independent of time and reflect price in its entirety. Although Candlesticks or bar charts or line charts are more commonly used, they are all common because the price is captured in a time frame. Candlestick charts and others typically show the opening price, the high and low and the closing price during a specified period of time. The time frame here could be from as little as 1 minute (or even a tick) to as far out as 1 month or more.
In the first chart below, we can see how candlesticks plot prices, compared side by side with a 60 minute chart and a daily chart. As you can see the open/close/high/low per session (or per unit of time frame) is different between the 60 minute and the 1 day candlestick chart.
Renko bars are unique because of the box or bricks that are formed. Unlike candlestick/bar/line charts where price is plotted on the y-axis and time on the x-axis, on Renko bars only price (on y-axis) is used. The x-axis although shown in Renko charts are redundant.
How are Renko bars formed?
As mentioned earlier, Renko bars purely depict price. For example, if a box size of 5 pips is chosen from EURUSD, then for every 5 pip move in price, a new Renko brick is formed. Renko bars are not bothered with the time frame. Meaning, that if EURUSD moves only 3 pips in a day, the new brick is not formed (but a candlestick chart will print a candlestick with 3 pips move for the day and it will open a new candlestick the next day). This approach to charting Renko bars results in showing price trends very clearly and Renko bars are typically void of any noise that one often sees on other chart types.
In the next chart above, this is better illustrated.
On the left side we have a 20 pip renko bar and on the right side we have a regular candlestick chart. The horizontal lines you see are split 20 pips.
Notice that in the first note mentioned ‘Renko bar closes at 1.11771‘ in the corresponding candlestick you can see that price in fact made a high and a low. But notice that the failure to close 20 pips above 1.11771 results in the Renko brick showing the close at 1.11771.
Now the next candlestick which has a strong open/close, you can see how price moved 80 pips in the day. Although the candlestick shows just one candle (representing the day) you can see that on the Renko chart, you have 4 Renko bars formed.
The same chart is now shown again without the wicks which represent the high and low. This should be a lot easier to understand now.
- How to read Renko charts?
- Renko chart types: Mean/Median Renko charts vs. regular Renko
- Trading the right box size with Renko charts
Do Renko bars give any benefit for traders?
This is probably the most commonly asked question for those who are either new to Renko bars or to trading in general. Bear in mind that the common factor between a regular chart (candlestick/bar/line chart type) and Renko chart is price. But this is the only common factor between the two.
While time is represented on the regular chart type, it is absent on a Renko bar chart.
It is often said that a Renko bar chart can depict trends very clearly. This is true. But trends are also easily seen in any other chart type as well. So why some traders such as myself prefer Renko charts? This is because Renko bars make price action or indicator based trading a lot simpler. We know that support and resistance forms the basis for any trading style or strategy. And Renko bars do a splendid job clearly showing the support and resistance levels, as well as the underlying price action minus the noise. Do Renko bars give you an edge in the markets? Not really. But mastering Renko bars can certainly help in improving your trading confidence.