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The Renko chart stands as a widely favored trading chart type on NinjaTrader 8, cherished by both novices and experienced professionals alike.
In this article, ninZa.co will join forces with you to delve into the world of this Japan-originated chart, unraveling its intricacies and unveiling the optimal methods for their usage.
A Renko chart, invented by the Japanese, is a unique type of trading chart that exclusively focuses on price movements meeting specific minimum requirements.
Interestingly enough, the name "Renko" is believed to originate from the Japanese word "renga," which translates to "bricks." Consequently, a Renko chart resembles a collection of bricks or boxes.
These bricks exhibit upward or downward movement, following 45-degree lines, and create one brick per vertical column.
In a bullish situation, the bricks are colored green or white, while in a bearish situation, they appear as red or black.
Renko charts operate by consolidating smaller price movements into compact blocks.
These charts offer the flexibility to fully customize the brick size, enabling users to determine when a new brick forms.
In essence, each Renko block displays only the uptrend or downtrend since the preceding block.
For instance, if you set the brick size of the Renko chart to $10, the chart will generate an upward or downward brick only when the market has risen or fallen by $10.
It is crucial to emphasize that new bricks are added to the chart only when price movements entirely fill the predetermined brick size.
A new brick will only appear when the price movement is big enough to match the brick size, even if prices go higher or lower than the previous brick.
Renko charts have some highlighted advantages:
While Renko charts are useful tools for technical analysis, they do have some drawbacks:
Both Renko and Heikin-Ashi charts originate from Japan and share a common visual style, accentuating trends through uninterrupted upward or downward movements.
However, the discrepancy emerges in the block sizes.
Renko charts use a fixed number of units per block, whereas Heikin-Ashi charts determine block sizes based on the average of open, high, low, and close prices spanning current and preceding periods.
Consequently, each Heikin-Ashi block assumes a distinct size, reflecting the average price movement.
The candlestick chart is notably more complex than the Renko bars, as it delves deeper into smaller price details and shorter timeframes.
Unlike the Renko chart, a new candle is formed with each time interval, irrespective of price movements.
In the chart below, you can see a regular 15-second candlestick chart. It's marked with gold and black sections that represent each minute.
Traditional candle charts are based on time intervals, so every minute has the same space on the x-axis (equal intervals).
In the following example, you can observe a 2-tick Renko chart covering the same timeframe.
Renko bars are created solely based on price information, disregarding time. As a result, each minute may consist of a different number of bricks.
While Renko charts are not tied to time, the progression of time is still depicted along the x-axis.
It's advisable not to rely solely on the Renko chart. Instead, consider incorporating it into various trading strategies to maximize the benefits of this chart type.
Similar to the patterns that emerge on candlestick charts—like head and shoulders, triangles, and rounded tops or bottoms—Renko charts also exhibit comparable patterns.
These patterns can be more noticeable on Renko charts due to the reduction in minor price movements when contrasted with candlestick charts.
For traders aiming to make the most of trends, Renko charts offer a way to stay committed to the trend until a significant reversal occurs.
When trends persist over an extended period, this could lead to substantial gains.
However, predicting which price movements will continue and which will reverse remains challenging, making trend trading strategies inherently risky.
Renko charts emphasize support and resistance levels that might not be easily discernible on candlesticks or bar charts.
Consistent upward or downward shifts in Renko charts around specific price points signify robust resistance or support. These zones can be valuable for potential trading opportunities, like selling near resistance or purchasing near support.
Moreover, traders can also monitor chart breakouts from these zones, which could signal the initiation of a fresh trend.
Given the usefulness of Renko charts, it's not too surprising that they are loved by traders at all levels.
Although Renko bars can serve as a potent tool for spotting trends and potential trading chances, it's crucial to keep in mind that they aren't infallible.
Similar to any trading indicator, Renko charts should be employed alongside other NinjaTrader indicators, as well as additional techniques, to validate trades.
If you're in search of top-notch Renko indicators on NinjaTrader 8, RenKoKings should be your primary option.
In addition to the well-known product ninZaRenko (available for FREE), the RenKoKings store presents an array of NinjaTrader Renko bar indicators that distinctly define entry points for every trade.
