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Renko
Description
The
Renko charting method is thought to have acquired
its name from "renga" which is the
Japanese word for bricks.
Renko charts were introduced by Steve Nison
(a well-known authority on the Candlestick
charting method).
Renko
charts are similar to Three
Line Break charts except that in a Renko
chart, a line (or brick as they are sometimes
called) is drawn in the direction of the prior
move only if a fixed amount (i.e. the box size)
has been exceeded.
The bricks are always equal in size.
For example, in a five unit Renko chart, a
20 point rally is displayed as four equally sized,
five unit high Renko bricks.
To
draw Renko bricks, today's close is compared with
the high and low of the previous brick (green or
red). When
the closing price rises above the top of the
previous brick by the box size or more, one or
more equal height, white bricks are drawn in the
next column. If
the closing price falls below the bottom of the
previous brick by the box size or more, one or
more equal height, red bricks are drawn in the
next column.
If
the market moves up more than the amount required
to draw one brick, but less than the amount
required to draw two bricks, only one brick is
drawn. For
example, in a two unit Renko chart, if the base
price is 100 and the market moves to 103, then one
green brick is drawn from the base price of 100 to
102. The
rest of the move -- from 102 to 103 -- is not
shown on the Renko chart.
The same rule applies anytime the price
does not fall on a box size divisor.
Indicators
calculated on renko charts use all the data in
each column and then display the average value of
the indicator for that column.
Interpretation
Basic
trend reversals are signaled with the emergence of
a green or red brick.
A new green brick indicates the beginning
of a new uptrend. A
new red brick indicates the beginning of a new
downtrend. Since
the Renko chart is a trend following technique,
there will be times when the market induces
whipsaws. However,
a trend following technique is intended to allow
traders to ride on the major portion of the trend.
Since
a Renko chart isolates the underlying trends by
filtering out the minor ups and downs, Renko
charts are excellent for helping determine support
and resistance levels.
For
more in-depth coverage of the Renko charting
method, we recommend the book Beyond
Candlesticks by Steve Nison. |
