Renko chart trading strategy

A Renko chart is a type of price chart that presents market movements differently from traditional chart formats such as candlestick and Heikin Ashi charts.

Most trading charts display market movements as different units of time, which is what makes a Renko chart so unique. Rather than displaying every price fluctuation, Renko charts are made up of boxes, or ‘bricks’, that highlight only meaningful price movements. Each new brick is typically drawn offset diagonally from the last, though the exact visual angle depends on how the platform scales the axes.

Renko charts filter out smaller market fluctuations by grouping price changes into fixed-size bricks. Traders choose the brick size in advance, and a new brick is only formed when the market moves by that predetermined amount. For example, if the brick size is set to £10, a new brick will only appear once the asset's price has risen or fallen by £10. This helps traders focus on the underlying trend and reduce market noise.

One of the main reasons traders use Renko charts is their ability to provide a cleaner, more streamlined view of price action, making underlying trends easier to identify.

Unlike time-based charts, which capture every market fluctuation, Renko charts filter out much of the short-term market noise that can obscure the bigger picture. By focusing only on meaningful price movements, they help traders distinguish genuine trends from temporary volatility.

This simplified view can make strong bullish and bearish trends easier to spot, while also helping traders identify key support and resistance levels more clearly.

However, since Renko charts ignore the time dimension, they come with a lot less information than other chart types, such as the market’s opening, closing, and high and low prices. For short-term trades, such as scalping and day trading, this could potentially be a problem.

Heikin Ashi vs Renko

Heikin Ashi and Renko charts are both designed to reduce market noise, but they do so differently.

Heikin Ashi charts use modified candle calculations based on the current and previous period's open, high, low, and close prices to smooth trends while still remaining time-based, making trend direction easier to see. Renko charts ignore time entirely and create new bricks only when price moves by a predefined amount, focusing purely on price movement and filtering out small fluctuations.

As a result, Heikin Ashi is often preferred for identifying trend strength and reversals within a time framework, while Renko is favoured for highlighting significant price movements and support/resistance levels with minimal noise.

Candlestick patterns vs Renko

Candlestick patterns and Renko charts both help traders analyse price action, but they do differ in some respects.

Candlestick patterns are time-based and use individual candles to provide clues about market sentiment, momentum, and potential reversals, often relying on short-term price behaviour. Renko charts, by contrast, ignore time and form bricks only when price moves by a specified amount, filtering out minor fluctuations and highlighting the underlying trend more clearly.

For these reasons, candlestick patterns are useful for identifying specific trading signals and understanding market psychology, while Renko charts are better for trend-following and reducing noise in volatile markets.

Swing trading

Renko charts can be particularly useful for swing traders looking to capitalise on market trends while avoiding premature exits. During an uptrend, a Renko chart will continue to generate green bricks until the price reverses by a predefined amount. Traders can set this reversal threshold in advance and, once it is reached, decide whether to close their long position. 

Breakouts above key support or resistance levels on either Renko or candlestick charts can serve as potential entry signals. Likewise, if price action begins to lose momentum at a resistance level, a swing trader may choose to open a short position and hold it until the price declines towards support or the Renko chart changes colour or direction. A similar approach can be applied to long positions when prices are trading near support levels. 

Trend trading strategy

One of the most popular ways to use Renko charts is within a trend trading strategy, where traders seek to identify and follow sustained market momentum. A key element of this approach is choosing a brick size. Larger brick sizes require greater price movement before a new brick is formed, helping to filter out minor market fluctuations.

For instance, if the brick size is set to five points, the market must move at least five points before a new brick appears on the chart. If the market then reverses direction, the price will need to move by at least 10 points in the opposite direction before a new brick is created, signalling the potential start of a new trend.

Many traders prefer to use larger brick sizes in a Renko strategy as a simple way to focus on more significant price moves. In forex trading, brick sizes are often set somewhere in the region of 5 to 20 points, though the right size varies significantly depending on the currency pair, its volatility, and the trader's chosen timeframe.

Breakout strategy

The primary objective of a breakout strategy is to take advantage of the Renko chart's ability to highlight market momentum, helping traders identify when price is likely to break beyond established support or resistance levels. The goal is to enter a position early in the development of a new trend and place a stop-loss at the breakout point to help manage risk.

Despite its potential benefits, this approach can be heavily reliant on hindsight, as successfully identifying a breakout before it occurs often requires significant market experience and strong analytical skills. In addition, breakout strategies are frequently influenced by timing, yet traditional Renko charts do not incorporate the element of time, which can limit their effectiveness for some traders.

Scalping 

The goal of a scalping strategy is to capitalise on small price fluctuations, often through multiple trades within a single day. While Renko charts can help identify the overall market trend, they do not update continuously in the same way as candlestick charts. Because of this, they may not always provide the timely information needed for fast-paced scalping decisions, which is why some traders may not utilise Renko charts for this particular trading style.

However, traders can adapt Renko charts for scalping by using smaller brick sizes to generate more frequent signals. This allows the charts to capture more frequent market movements, helping to highlight short-term trends and potential reversals that may present scalping opportunities.

Pros 

• Filters out market noise: Small price fluctuations are ignored, making trends easier to spot. This helps traders focus on the dominant market direction instead of getting distracted by minor pullbacks.
• Clear trend identification: Uptrends and downtrends often appear as long sequences of same-coloured bricks, allowing trend-following traders to stay with a winning move.
• Better support and resistance visualisation: Key levels often stand out more clearly than on traditional candlestick charts, making it easier to identify breakout and reversal zones.
• Reduces emotional reactions: Because many insignificant price movements are removed, Renko charts often look cleaner and less chaotic. This can help traders avoid reacting to every market movement.

Cons 

• Time information is lost: A brick may take minutes, hours, days, or weeks to form, so you can’t tell how quickly or slowly a move occurred.
• Signals can be delayed: A new brick only appears after the price has already moved the full brick size, which means entries and exits frequently occur later than on other charts.
• Brick size selection is paramount: Using a brick size that's too small creates noise, and a brick size too large can hide important moves. This means that results can vary significantly depending on the chosen settings.

At Trade Nation, Renko charts are available natively within TradingView. Make sure to check out our guide on how to use TradingView as well if you are unsure of how to use it on our platform. MT4 doesn't include Renko charts as a built-in chart type, but it can be added via a compatible custom indicator.

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