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 Renko - Technical Analysis from A to Z
RENKO

Overview

The Renko charting method is thought to have acquired its name from "renga" which is the Japanese word for bricks. Renko charts are similar to Three Line Break charts except that in a Renko chart, a line (or "brick" as they're called) is drawn in the direction of the prior move only if prices move by a minimum amount (i.e., the box size). The bricks are always equal in size. For example, in a 5-unit Renko chart, a 20-point rally is displayed as four, 5-unit tall Renko bricks.

Kagi charts were first brought to the United States by Steven Nison when he published the book, Beyond Candlesticks.

Interpretation

Basic trend reversals are signaled with the emergence of a new white or black brick. A new white brick indicates the beginning of a new up-trend. A new black brick indicates the beginning of a new down-trend. Since the Renko chart is a trend following technique, there are times when Renko charts produce whipsaws, giving signals near the end of short-lived trends. However, the expectation with a trend following technique is that it allows you to ride the major portion of significant trends.

Since a Renko chart isolates the underlying price trend by filtering out the minor price changes, Renko charts can also be very helpful when determining support and resistance levels.

Example

The following charts show Intel as a classic high-low-close bar chart and as a 2.5-unit Renko chart.

I drew "buy" and "sell" arrows on both charts when trend reversals occurred in the Renko chart. You can see that although the signals were late, they did ensure that you invested with the major trend.

Calculation

Renko charts are always based on closing prices. You specify a "box size" which determines the minimum price change to display.

To draw Renko bricks, today's close is compared with the high and low of the previous brick (white or black):

• If the closing price rises above the top of the previous brick by at least the box size, one or more white bricks are drawn in new columns. The height of the bricks is always equal to the box size.

• If the closing price falls below the bottom of the previous brick by at least the box size, one or more black bricks are drawn in new columns. Again, the height of the bricks is always equal to the box size.

If prices move more than the box size, but not enough to create two bricks, only one brick is drawn. For example, in a two-unit Renko chart, if the prices move from 100 to 103, only one white brick is drawn from 100 to 102. The rest of the move, from 102 to 103, is not shown on the Renko chart.

 Renko Chart Patterns Stock Screener Action White Trend Black Trend Turnaround White Brick Turnaround Black Brick Double Top Double Bottom Head and Shoulders Inverted Head and Shoulders Triple Bottom Triple Top Ascending Triangle Breakout Descending Triangle Breakout Symmetrical Triangle Bullish Breakout Symmetrical Triangle Bearish Breakout

 Content Technical Analysis Price Fields Charts Support & Resistance Trends Moving Averages Indicators Market Indicators Line Studies Periodicity The Time Element Conclusion

 Reference Reference  Absolute Breadth Index  Accumulation/Distribution  Accumulation Swing Index  Advance/Decline Line  Advance/Decline Ratio  Advancing-Declining Issues  Advancing, Declining,   Unchanged Volume  Andrews' Pitchfork  Arms Index  Average True Range  Bollinger Bands  Breadth Thrust  Bull/Bear Ratio  Candlesticks, Japanese  CANSLIM  Chaikin Oscillator  Commodity Channel Index  Commodity Selection Index  Correlation Analysis  Cumulative Volume Index  Cycles  Demand Index  Detrended Price Oscillator  Directional Movement  Dow Theory  Ease of Movement  Efficient Market Theory  Elliott Wave Theory  Envelopes (Trading Bands)  Equivolume  Fibonacci Studies  Four Percent Model  Fourier Transform  Fundamental Analysis  Gann Angles  Herrick Payoff Index  Interest Rates  Kagi  Large Block Ratio  Linear Regression Lines  MACD  Mass Index  McClellan Oscillator  McClellan Summation Index  Median Price  Member Short Ratio  Momentum  Money Flow Index  Moving Averages  Negative Volume Index  New Highs-Lows Cumulative  New Highs-New Lows  New Highs/Lows Ratio  Odd Lot Balance Index  Odd Lot Purchases/Sales  Odd Lot Short Ratio  On Balance Volume  Open Interest  Open-10 TRIN  Option Analysis  Overbought/Oversold  Parabolic SAR  Patterns  Percent of Resistance  Percent Retracement  Performance  Point & Figure  Positive Volume Index  Price and Volume Trend  Price Oscillator  Price Rate-of-Change  Public Short Ratio  Puts/Calls Ratio  Quadrant Lines  Relative Strength, Comparative  Relative Strength Index  Renko  Speed Resistance Lines  Spreads  Standard Deviation  STIX  Stochastic Oscillator  Swing Index  Three Line Break  Time Series Forecast  Tirone Levels  Total Short Ratio  Trade Volume Index  Trendlines  TRIX  Turn Price  Typical Price  Ultimate Oscillator  Upside/Downside Ratio  Upside-Downside Volume  Vertical Horizontal Filter  Volatility, Chaikin's  Volume  Volume Oscillator  Volume Rate-of-Change  Weighted Close  Williams' Accumulation/Distribution  Williams' %R  Zig Zag

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