In today’s stock markets, the success of a stock trade largely depends on precise price movements and this is where resorting to Renko charts makes a big sense. Renko charts refer to a kind of chart type that is designed to check price movement. Trade with Renko Charts are found to be quite powerful when it comes to analyzing price shifts and trade.
The removal of these trivial price movements makes it easier for traders to spot worthy price trends in the stock markets. This is one of the major reasons why the use of Renko charts is quite prevalent in the industry. Some other reasons are these charts are simpler to analyze, use of uniform blocks in comparison to candlestick charts.
What are Renko Charts?
Renko charts are used to check price movement. The term, Renko, has been emerged from the Japanese word, renga, which refers to “brick.” Not so unpredictably, Renko charts are prepared using a string of bricks (or Bars), whose development is dogged by price variations. The idea of Renko bars is quite simple. Initially, the size of the bricks is pre-defined by the user. Once the price shifts more than the user-state brick size, either upper or lowers than the latest brick, a fresh brick gets featured in the chart.
How Renko Charts are made?
As mentioned above, Renko charts are made with the use of bricks having a determined value which wipes out smaller price movements. This is the foremost reason why these charts capture only one piece of information in a day or week. It is extremely important to note that Renko charts disregard the time factor and only concentrate on price variations.
For instance, if the brick value is defined at 50 points, then a shift of 50 points is needed to design another brick.
Price shifts of less than 50 points tend to be snubbed and another brick will not be created in the Renko chart.
Types of Renko charts:
There are primarily two kinds of Renko charts that are based on the used measurement approach. They are high/low charts and open/close charts.
1. High/Low Renko Chart
This kind of Renko chart pays to focus on the behavior of each price movement. It is inclusive of the price stroke between the uppermost and the lowermost price on the chart.
2. Open/Close Renko Charts
This Renko style considers only those price movements that are discovered within the Open/Close band of the price activity.
Benefits of trade with Renko Charts
Renko charts do not consider the time factor and therefore wipe out sounds and trivial price movements on the charts.
Increasing of reducing the size of the box will influence how clear the chart will be. Reducing the size of the box tends to make more swipes, but will also reveal potential price setbacks quickly. Large box size will reduce the number of swings and noise but will be slower to depict a setback price. So trade with renko charts is very beneficial if you analyze it deeply.
How box value is determined?
Traders can utilize the “box” settings to setup the brick size that can be defined as a particular value or as the Average True Range (ATR). A particular point value means the brick size will stay uniform even when fresh information is fed in the chart.
On the other side, ATR values led to the fluctuation of the brick sizes. The default ATR is of 14 periods and it varies over time.
How to trade using Renko Charts
The top 10 stock brokers in India say that traders can choose to utilize troughs for highlighting support levels and mountains for designing resistance stages. They can also search for a two brick setback that indicates a trend change.
Green bricks are created when prices increase to a specific amount and red bricks take shape when prices reduce to a particular level.
It is necessary to keep in mind that a pointer on a Renko chart relies on the Renko values and vary from the same indicator in case of a bar chart. The stock traders must make use of shorter moving averages on Renko charts since trivial price actions have already been wiped out.
Difference between Renko Charts and Candlestick Chart:
The foremost difference between a Renko chart and a candlestick chart is the smoothness of Renko charts which remains quite high as compared to candlestick charts. The same pattern is followed in the case of the OHLC (open, high, low, close) bar chart.
This is the reason why all the leading stock brokers in India choose to compare a Renko chart and a candlestick chart, the price movements on the candlestick chart is found to change directions very frequently.
According to the best stock broker in India, another major variance between the two types of charts is that a Renko chart doesn’t precisely produce the latest information. Since the Renko chart apprises only when a fresh brick is created and the candlestick chart always reveals the recent price.
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The Conclusion
Though there are different types of charts available to analyze the stock market and price movements. In various aspects, Renko charts are found to be quite better than candlestick charts and bar charts. This might be the reason why a large number of traders use Renko charts when it comes to analyzing price movements.
