Renko Charts: Pure Price Action Trading
The Dimension of Price: What is a Renko Chart?
Developed in Japan (Renko means 'brick'), Renko charts are a unique way of visualizing price action that ignores time and focuses solely on price movement. Standard charts plot a new bar every Minute or Hour, even if the price is standing still. A Renko chart only plots a new 'Brick' when the price moves a specific distance (the Brick Size).
This makes Renko charts the ultimate tool for trend-followers. They filter out 'noise' and 'market chop' because the chart simply stops moving when the market is sideways. It reveals the structural truth of the trend without the distractions of time-based consolidation.
Brick Size Configuration: ATR vs. Fixed Pips
The most critical setting for a Renko chart is the Brick Size. 1) Fixed Pips: You set the brick to 10 pips or 50 cents. A new brick only appears when those 10 pips are achieved. 2) ATR-based: The brick size automatically adjusts based on the current Average True Range (Market Volatility).
ATR-based Renko is preferred for long-term swing trading, as it compensates for changing market regimes. In a highly volatile market, the bricks become 'thicker' to filter out noise. In a low-volatility market, they become 'thinner' to catch the small structural moves.
{ Renko Trading Checklist }
Brick Size: Use 14-period ATR for dynamic scaling
Entry: Long on first green brick (Trend pivot)
Entry: Short on first red brick (Trend pivot)
Strength: Count consecutive bricks for trend momentum
Trailing Stop: Move stop 2 bricks behind the current color
Correction: Ignore single bricks of opposite color (Noise)
Strategy: Trading Brick Color Flips and Reversals
Trend Following: In a strong trend, you will see a series of green bricks with no reversals. As long as the color stays green, you stay in the trade. This is one of the easiest ways to 'Let your winners run'. The Reversal Signal: A reversal in Renko is a 2-brick move in the opposite direction. If you see two red bricks appear after a green series, it’s a structural signal that the trend has changed. This is much more reliable than a standard candle 'Pin bar' because it requires actual price distance to confirm.
Warning: Missing the Intraday Volatility
Because Renko charts ignore time, they can hide what happened inside a brick. If the price spikes up and then crashes down within the same brick size, you will see nothing but a blank chart until the full brick distance is achieved. Never use Renko for finding 'Perfect' entry timings; use it for identifying structural trend direction and exits.