Renko Charts

©Trading Research - www.trading-research.com - november  2015 - Autore: Dr.Roberto Ambrogi
The renko charts are just one between the many kind of graphical price action representation (price action = the first market dimension). They comes from Japan as well as their "cousin" candlesticks, being actually a sub-category of them and being therefore visually very similar.
Their characteristic is to completely ignore the time factor allowing us to focus our attention entirely on the price action.

Renko with wicksIn particular they make it possible to eliminate the noise, highlighting only price movements that are significant for us, that means price movements greater than a predetermined amount of ticks.
They are composed by:
BRICKS: they are actually the "body" of the renko bars, they all have the same predetermined wideness of a certain amount of ticks that show the open and the close in that price range variation.
SHADOWS: they are exactly the same thing of the candlesticks shadows, the only difference is that they will never be wider than two times the brick's width less one tick.
RENKO WITHOUT SHADOWS: it is possible also to use the renko charts without shadows visualizing only the bricks, the downside of this choice is that in this way we lose the information brought us by the shadows highlighting excess/rejections particularly useful especially at important price levels.
Let's try to go a bit deeper on this kind of price action representation; for example if we set the charting software to generate a 4 ticks renko chart it will build a chart with a 4 tick wide bricks; if the price is going up, it will create a new green brick on every upward 4 ticks; after an upward movement to see the first red brick it is necessary the price to retrace downward 4 full ticks below the last green brick, to then create eventually another red brick on the further 4 ticks down and so on.
Consequently the characteristic of the renko charts is that (continuing on the 4 ticks renko example) it cannot exist (by definition) 2 consecutive bricks overlapping, every brick will have after itself another brick positioned 4 ticks above (green) or 4 ticks below (red) itself.Renko senza wicks-english
At Trading Research we widely use the renko charts on our intraday charts because:
1) it's easy to focus on different magnitude movements of the price simply changing the number of ticks set for the brick's width, for example I use on my trigger chart a 2-4 or 5 ticks renko chart depending on the financial instrument, and respectively a 4-8 or 10 ticks renko of the same instrument for a wider magnitude perspective, exactly as I could do with a classical time based chart.
2) the price action is much more "clean", rotations are more evident, static and dynamic supports and resistance are much more easy to see.
3) when there is a fast market, a violent market movement due to the release of a news or for any other reason (when it is better not to be into a position) this sudden movement, observed just after it happened, on a renko chart it is still legible, while on a time based chart the information that I can draw out are usually much more less in these occasions.
In conclusion the use of renko charts is very common among scalpers and short term traders, as already mentioned at Trading Research we make a large use of them, however I want to point out that renko charts, beyond the undoubted advantages are actually simply a representation of a single market dimension (price) that is not everything, price is just the instrument that advertises opportunities that have to be evaluated through the other two market dimensions: volume and order flow.
If you want to go deeper on this you can take a look at this free VIDEO on the subject. (just need to register with name and a valid e-mail address)
Good trading.