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Renko Charts at a Glance: Key Facts
| Question | Answer |
|---|---|
| What is a renko chart? | A price chart built from fixed-size bricks that form only when price moves a set amount |
| Where do renko charts come from? | Japan; introduced to Western traders by Steve Nison in his 1994 book Beyond Candlesticks |
| What does "renko" mean? | From the Japanese word renga, meaning "brick" |
| What determines a new brick? | Price must move the full brick size from the prior brick's close to form a new one |
| How is brick size set? | Fixed point value, ATR (Average True Range), or percentage of asset price |
| What markets use renko charts? | Stocks, forex, commodities, indices, crypto |
What Is a Renko Chart?
A renko chart is a price chart that ignores time and records only price movement. Each rectangular brick forms only when price moves a predetermined amount. When price fails to reach that threshold, no new brick appears, and the chart stays unchanged.
The result is a chart that filters out minor fluctuations and draws your attention to the direction the market is actually moving. This makes trend identification faster and reduces the number of false signals you see on standard candlestick or bar charts.
The Brick Mechanic: How a New Bar Forms
Each renko brick connects to the corner of the previous one at a 45-degree angle. An upward brick forms when price closes at least one full brick size above the top of the last brick. A downward brick forms when price closes at least one full brick size below the bottom of the last brick.
A reversal brick requires twice the brick size to form, because price must first pass through the current brick and then complete a full brick in the opposite direction. Upward bricks are typically colored green or white. Downward bricks are colored red or black.
Two rules govern every renko chart: no two bricks can appear side by side in the same column, and a brick only confirms when the price movement is complete, not while it is still forming.
Renko vs Candlestick Charts: Key Differences
The table below shows the practical difference between the two chart types.
| Feature | Renko Chart | Candlestick Chart |
|---|---|---|
| Time axis | No fixed time axis | Fixed intervals (1m, 1h, 1d, etc.) |
| New bar condition | Price moves set amount | New time period begins |
| Wicks/shadows | None | Present |
| Noise filtering | High | Low to medium |
| Trend clarity | Strong | Moderate |
| Signal frequency | Lower | Higher |
| Backtesting reliability | Requires caution (look-ahead bias risk) | Standard |
Candlestick charts give you more data points per session. Renko charts give you fewer, cleaner signals. The trade-off is signal frequency versus signal quality.
Key Takeaway: A renko chart builds one new brick only when price moves a set distance, regardless of how long that takes. This removes time from the equation and keeps your focus on price structure. Upward bricks are green or white, downward bricks are red or black. Reversal bricks require twice the brick size to form.
How to Set Your Renko Brick Size
The brick size is the single most important setting on a renko chart. Set it too small, and you get a cluttered chart full of reversals. Set it too large, and you miss entries. Three methods cover most use cases.
Most traders start with ATR-based sizing because it adapts to current market conditions automatically. Fixed and percentage methods work better when you want consistent, predictable signal behavior across different market phases.
Fixed Value Brick Size
A fixed brick size stays constant regardless of how volatile the market becomes. If you set a 10-point brick on an index, every brick always represents exactly 10 points of price movement. This approach suits traders who want predictable risk per brick and a stop-loss size they can calculate in advance.
The drawback is that a fixed size set during a low-volatility period will produce too many bricks during high-volatility conditions, and vice versa.
ATR-Based Brick Size
The renko indicator most widely used for brick sizing is the Average True Range (ATR), typically calculated over 14 periods. The ATR value at chart creation becomes the brick size. If ATR reads 20 points, each brick represents 20 points of movement.
StockCharts uses ATR to auto-set brick size, keeping the chart aligned with current volatility levels. Smaller brick values relative to ATR produce more signals. Larger values produce fewer, smoother trends. Dividing ATR by 2 increases sensitivity; multiplying by 2 reduces it.
Percentage of Asset Value
Some traders set brick size as a percentage of the asset's current price, typically between 0.25% and 1%. This method scales naturally as asset prices change over time. A 0.5% brick on a $50,000 asset equals $250 per brick. On a $5,000 asset, the same percentage produces a $25 brick.
