The 'Noiseless' Renko Charts

Candlestick charts can be noisy

Traders are most comfortable with candlestick charts for decoding price movements and identifying trends. More so, the first thing an aspiring trader is taught is how to read a candlestick.

Undoubtedly, typical candlestick charts convey detailed information about a stock’s price movement over time. But if you’ve tried using them, you’ll know that they can be noisy at times. Small corrections, volatility, and false signals can interfere with correctly identifying and riding a trend.

The good news is that there’s a way to look at price movements without the ‘noise’ - say hi to Renko charts!

The ‘Noiseless’ Renko Charts

‘Renko’, translates to ‘bricks’ in Japanese. Renko charts are hence, constructed with consecutive bricks placed diagonally next to each other, looking like this:

Each brick represents a predetermined price movement (green for bullish, red for bearish). The change can be in absolute price, percentage terms, or even based on the average true range. For example, if we set the Renko chart of a stock to a brick size of 5%, a bullish or bearish brick will be formed only when there is a bullish or bearish price movement of at least 5%. Since the time scale is not fixed, some bricks may take longer to form than others.

Look at the difference between RIL’s candlestick chart and its Renko chart over the same duration ⏬

You can see how only the most important changes in prices are captured. Since all movements that are smaller than the brick size are eliminated, a clear trend can be spotted.

By combining Renko charts with the right indicators and patterns, a successful trading strategy can be developed.

Learn to use various indicators on Renko charts and execute winning strategies in Ms. Mukta Dhamankar’s Renko Chart Trading Course.

Use “STOCK10” for a 10% discount and get the course for just ₹359