The Renko Chart originated in Japan, with its name derived from the word “Renga” (brick) due to its unique brick-like structure. It ignores time and forms new bricks only when price moves by a fixed amount. Renko charts are widely used for trend-following strategies, helping traders eliminate small fluctuations and focus on major price moves.
Chart Construction
- Uses bricks of a fixed price size instead of time-based plotting.
- A new brick is formed only if the price moves by a predefined amount.
- Green bricks indicate uptrends, red bricks indicate downtrends.
Importance
- Great for trend-following strategies, as it filters out noise.
- Provides clear support and resistance levels.
- Ideal for traders focusing on long-term trends.
Limitations
- Not suitable for short-term trading due to delayed signals.
- Requires careful selection of brick size for accurate trend analysis.