Renko Bars what are they are how do currency traders chart them?
As traders we are always looking to improve our edge in the market and even the smallest improvement can be increasing our performance.
Renko Bars offer us an opportunity to look at the markets without the exposure to noise that is often associated with normal price action reflected on our trading charts.
What are Renko Bars? Renko bars or charts are constructed by placing a brick in the next column once the price surpasses the top or bottom of the previous brick by a predefined amount. In our illustration, green bricks are used when the direction of the trend is up, while red bricks are used when the trend is down. This is a very effective way to identify key support and resistance levels. When the market moves in the same direction of the prior Renko Brick, by the specified Brick Size, a new brick will be added in the same direction as the prior brick. When the market moves in the opposite direction of the prior brick, by the specified Brick Size, a new Renko brick will be added in the opposite direction of the prior brick. If there is no major change in price, i.e., price remains in the range of the last brick, no new bricks will be added.
Cautionary note for new traders: One key thing we need to remember when trading using Renko Bricks is that each brick will only print the pre-defined number of points you have selected as your brick size. You may find it useful to have a tick chart running next to your renko bar or chart to ensure you have a clear idea of where price has been. This is particularly important around key levels and at the high and low of the day.
Calibrating Your Renko Bars With any testing or live trading you definitely need to have a standard setting you use to retrieve your data. Otherwise your brick settings will be different and subsequently affect your results. For example, live trading charts my draw on a minimum 30 days data to maintain the integrity of the charts.
Advantages of Using Renko Bars over Time Based Charts You will notice that Renko Bars help:
- Clean up price action;
- Clearly identify areas of support and resistance;
- Take the noise out of the market to help focus on trading opportunities.