# Renko Bars

\- "This is not a trading indicator!"

\- I know. So?

Renko Bars are not exactly an indicator, but a unique charting method that helps traders focus on significant price movements by filtering out the noise of minor fluctuations. Originating from Japan, the word "Renko" is derived from the Japanese word for bricks, "renga," because the charts resemble a series of bricks stacked at 45-degree angles. Unlike traditional charts that plot price against uniform time intervals, Renko charts are built solely based on price changes, making it easier to spot trends and key support and resistance levels.

### H**ow Are Renko Bars Constructed?**

<figure><img src="https://2144832987-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2F9gpm8AbUkT9y2fUw2shH%2Fuploads%2FSCo36m9sxEq1Y4zJoGLD%2Fimage.png?alt=media&#x26;token=21f68d6c-e8c7-4adb-81d8-d53c2c58eb1e" alt=""><figcaption></figcaption></figure>

* **Box Size (Brick Size):**
  * Decide on a fixed box size, which is the amount the price must move to form a new brick. For example, you might choose $0.50, $5, or a certain number of pips in forex trading.
  * Alternatively, use the Average True Range (ATR) to set a dynamic box size that adjusts with market volatility.
* **Brick Formation:**
  * **Up Brick (Typically White or Green).** Added when the price rises above the top of the previous brick by at least the box size.
  * **Down Brick (Typically Black or Red).** Added when the price falls below the bottom of the previous brick by at least the box size.
  * Bricks are placed at 45-degree angles but never directly beside each other.
* **Time Axis:**
  * Renko charts have a time axis, but the intervals are not uniform. Some bricks may take longer to form than others, depending on how quickly the price moves.

### H**ow to Read Renko Charts**

* **Trend Identification:**
  * **Uptrend:** a sequence of consecutive up bricks indicates a rising market.
  * **Downtrend:** a sequence of consecutive down bricks indicates a falling market.
* **Support and Resistance:**
  * Renko charts help highlight key support and resistance levels due to their noise-filtering nature.
* **Trading Signals:**
  * **Trend Reversals:** A change in brick color suggests a possible reversal.
  * **Continuation Patterns:** Sustained sequences of same-colored bricks indicate strong trends.

<figure><img src="https://2144832987-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2F9gpm8AbUkT9y2fUw2shH%2Fuploads%2F2yuEcJ6TsJbMR5ciuvMW%2Fimage.png?alt=media&#x26;token=1ef0e9b4-9f6f-4a16-8e46-4fd4570e34e9" alt=""><figcaption></figcaption></figure>

### U**sing Renko Bars in Trading**

1. **Setting the Box Size:**
   * **Fixed Box Size.** Choose a box size suitable for your trading style and the asset's volatility.
   * **ATR-Based Box Size.** Use the ATR indicator to set a box size that adapts to market conditions.
2. **Trading Strategies:**
   * **Trend Following:**
     * Enter long positions during a series of up bricks.
     * Enter short positions during a series of down bricks.
   * **Reversal Trading:**
     * Watch for a color change after a strong trend as a signal to exit or reverse your position.
   * **Support and Resistance Breakouts:**
     * Use the clear levels on Renko charts to trade breakouts when the price moves beyond established support or resistance.
3. **Combining with Other Indicators:**
   * Enhance your analysis by adding indicators like Moving Averages, RSI, or MACD to confirm signals from the Renko chart.

### P**ractice Exercise**

Let's put this into action:

1. **Set Up Renko Charts:**
   * Open your trading or backtesting platform. Select any asset. *To avoid repeating myself: you can always use any assets for the exercises. Even if the exercise specifies a specific currency pair, cryptocurrency or stock, they are provided as an example and can be replaced.*
   * Configure your chart to display Renko Bars.
   * Set an appropriate box size for the asset you're analyzing (e.g., $1 for stocks, 10 pips for forex).
2. **Identify Trends and Signals:**
   * Observe the pattern of bricks to determine current market trends.
   * Look for changes in brick color to spot potential trend reversals.
   * Identify clear support and resistance levels on the chart.
3. **Make Demo Trades:**
   * Based on the Renko chart signals, place demo trades on your platform.
   * For example, enter a long position when you see a new up brick forming after a series of down bricks.
   * Set stop-loss orders below recent lows to manage risk.
4. **Analyze Your Trades:**
   * Review the outcomes of your demo trades.
   * Note how effective the Renko signals were in predicting market movements.
   * Adjust your strategy as needed based on your observations.

It all comes with practice. Stay tuned!
