8/28/09

Renko Charting

How Renko Charts Can Be Helpful In Online Trading

The Renko chart is a trend following technique. It has acquired its name from a Japanese word "renga" meaning bricks. Renko charts is different from Three Line Break charts as here a line brick is drawn in the direction of the prior move only if prices move by a minimum amount which is equivalent to the box size that are always equal in size.

Interpretation Of A Renko Chart

The trend reversals are indicated by the appearance of a white or black brick. A Red brick indicates a new downward trend and Green brick indicates a new upward trend. There are situations where Renko charts produce whipsaws, giving indications of short-lived trends near the end. The expectation with a trend following technique is that it allows to ride the major portion of significant trends. RenkoChart is very helpful when determining support and resistance levels and it isolates the underlying price trend by filtering out the minor price changes.

Calculation

Renko charts are always based on the closing prices. Renko bricks are drawn after comparing, that day’s close with the previous brick (high or low). A "box size" which determines the minimum price change to show is specified.

Suppose the closing price falls below the bottom of the previous brick by at least the box size, one or more black bricks are drawn in new columns and if the closing price rises above the top of the previous brick by at least the box size, one or more white bricks are drawn in new columns. The height of the bricks is always equal to the box size. If prices move more than the box size, but not enough to create two bricks, only one brick is drawn.

For example, in a 10 unit Renko chart, if the prices move from 1.6020 to 1.6040, then two green bricks will be drawn from 1.6020 to 1.6030 and 1.6030 to 1.6040. However, if the price rises from 1.6020 to 1.6027 then only one green brick is drawn. The rest of the move, from 1.6020 to 1.6027 is not shown on the chart.



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