Forex Renko Charts are different from the usual forex charts like the bars charts and the candlestick charts. Forex Renko Charts can be far superior to the candlestick charts. Renko charts are primarily a price based charting system whereas the bar charts and the candlestick charts are both price as well as time based charting systems. Renko charts were also developed by Japanese.
What Are Renko Charts?
The word Renko means a brick. These bricks are defined by a minimum price movement. When the market makes this minimum price movement, a brick is added to the renko chart. When the price move is up, the brick is added above in a diagonal and when it is down, the brick is added below the previous brick in a diagonal. So, you will observe these charts to be moving in diagonals. When the prices are rising, white or hollow bricks are added to the chart and when the prices are falling, black bricks are added to the charts. So, by looking at the color of the bricks in a diagonal, you can see that the prices are rising or falling.
When the white brick appears the market is bullish and when the black brick appears the market is bearish. A brick is only added when the price moves by the required increment. For example, suppose the size of this increment is selected to be 5 pips. If the EURUSD rate increases from 1.3241 to 1.3246, a white brick will be added to the chart diagonally above the previous brick. Now, let’s say the EURUSD rate increases from 1.3249 from 1.3246. No brick will be added as the increment of 4 pips is less than the required increment of 5 pips. Now, suppose the price falls from 1.3249 to 1.3247 again no brick will be added but when it further falls to 1.3243 from 1.3247, a black brick will now be added below the previous brick diagonally.
You might have observed that no brick will be added as long as the minimum price movement is 5 pips in this case. Now, this minimum price movement can take place in minutes or in hours, you will have to wait. What this means is that these Renko Charts are totally time independent.
Importance of Renko Charts
Forex Renko Charts are used in identifying a trend in the forex market. These charts have been found highly useful in identifying micro changes in the market sentiment in the trends. In forex trading, these renko charts are used in scalping. The minimum price movement is usually set 1 pip. This way, you know how the market sentiment is changing at the micro level. Renko charting is considered to be a powerful form of charting that reduces the noise and clutter that is usually found on the time based charts. If you are interested, you should take a detailed look at this Forex Renko Charts System!