# Renko Charts

#### Definition

Renko charts are a chart type that only measure price movement. The word, renko, is derived from the Japanese word, renga, which means "brick." Not so coincidentally, renko charts are constructed from a series of bricks (or Bars), whose creation is determined by fluctuations in price. The concept of renko bars is very straightforward. First, the size of the bricks is pre-determined by the user. Once the price moves more than the user-defined brick size, either above or below the most recent brick, a new brick is added to the chart.

It is important to note that new bricks are only added when price movements completely fill the predetermined brick size. Prices may exceed the values of the previous brick (either above or below), however a new brick will not be formed until the price movement is large enough. For example, let’s say the brick size is set to 2 points and the last brick covers prices of \$52 to \$54. The new brick won’t be formed until prices close either at or above \$56 or at or below \$50. If price closes above \$56, for example \$57; the new brick must still stop at \$56.

There are two rules regarding brick placement:

1. Bricks will always have their corners touching.
2. There can never be more than one brick in any one vertical column.

#### Brick types

There are four different brick types, generated by a tradingview.com renko chart:

1. Up Bricks — Bricks that form above the previous brick.
2. Down Bricks — Bricks that form below the previous brick.
3. Projection Up Bricks — During an intraday timeframe, a potential up brick that would form based on current price (before actual closing price is set).
4. Projection Down Bricks — During an intraday timeframe, a potential down brick that would form based on current price (before actual closing price is set).

#### Brick calculation methods

There are two different methods for calculating bricks:

1. Average True Range (ATR) — Uses the values generated by the Average True Range (ATR) indicator. The ATR is used to filter out the normal noise or volatility of a financial instrument. The ATR method automatically determines a good brick size. It calculates what the ATR value would be in a regular candlestick chart and then makes this value the brick size.
2.  Traditional — Uses a user-pre-defined absolute value for brick size. New bricks are only created when price movement is at least as large as the pre-determined brick size. The upside to this method is that it is very straightforward and it is easy to anticipate when and where new bricks will form. The downside is that selecting the correct brick size for a specific instrument will take some experimentation. Typically, you will want to select a brick size that is about 1/20th of the current value of the instrument.

Accurate Renko brick calculation requires tick data. As a compromise, TradingView uses the chart's resolution close value or OHLC value. For example, a 10-minute Renko chart will use 10-minute closes to generate bricks. Only when the 10-minute interval has expired are all produced bricks locked in Renko history. Therefore, smaller timeframes will produce bricks that more accurately parallel tick-based Renko bricks.

Projection bars are necessary while the current chart interval has not yet expired. For example, during a 10-minute interval, one or more projection bricks may be visible as the current close moves toward the next brick threshold and beyond. Projection bricks only occur on realtime data, between chart interval values. This data is lost when the chart is reloaded. You can read more on the subject here.

#### Uses of Renko Charts

Traders who use Renko charts typically do so because they are easy to use and interpret. They are also different from a typical candlestick chart because they filter out all other variables besides price movement. There are many uses for Renko Charts, with some of the more popular uses being the chance to discover basic support and resistance levels, breakouts, and to generate signals with additional indicators.

Support and Resistance Levels — Frequently, when using Renko Charts, trading ranges appear when bars are generated between levels of support and resistance.

Breakouts — Breakouts occur when bars begin to generate in a defined direction after a period of trading within a support and resistance bound trading range.

Overbought/Oversold — A good example of using additional indicators within a renko chart to identify trade signals would be using the RSI in conjunction with renko bars to define overbought or oversold levels.

Please note that Renko brick prices are inherently synthetic because of their nature and therefore, they do not reflect market prices at any precise moment in time, as normal bars do. While Renko bricks may provide a useful interpretation of price activity in discretionary trading, using them to backtest, where order fills must reflect actual market prices at a specific time, is not recommended. Backtesting orders filled at Renko chart prices will inevitably be inaccurate. You can read more on the subject here

#### Renko Charts specific options in TradingView

Up Bars — Change the Color and Outline of Up Bars.

Down Bars — Change the Color and Outline of Down Bars.

Projection Up Bars — Change the Color and Outline of Projected Up Bars.

Projection Down Bars — Change the Color and Outline of Projected Down Bars.

Source — Can choose between Close and OHLC.

Box Size Assignment Method — Can choose between ATR brick calculation method and Traditional brick calculation method.

ATR Length — If ATR is the selected brick calculation method, this value will set the ATR look-back period. 14 is the default.

Box Size — If Traditional is the selected brick calculation method, this value is the user defined brick size.

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