Renko trading system is based on Renko charts what applied in technical analysis and show movement of the price in the form of diagonal rows consisting from rectangles (bricks). Each new rectangle is always built to the right from the previous one and its location is higher or below the previous Renko rectangle.
Mentioned upward or downward movement of price (for example, each 10 points) is marked by adding rectangle below (above) and to the right from the previous one. Upward movement is indicated by a transparent brick whereas downward movement (below previous value) – by a colored brick.
Learn rules of building Renko charts in Forex analysis
In process of work with Renko charts, each price movement is not indicated. Changes are only entered when prices changes for a value which is more than a discretional value. Prior to building chart of a certain financial instrument, below parameters should be taken into account:
- Price target – which price serves as basis for the chart. Only time-frame close price is used (for instance, closing 4 hours) Sometimes it is based on minimum or maximum – in this case priority shall be given to maximum: if the difference between previous price and maximum reached threshold, then a new full rectangle will be built, whereas minimum is only taken into account when full rectangle is not required and minimum value for building full rectangle is enough.
- Threshold amount (length of field) – height of rectangle (brick) expressed in points (for example, 10 points)
Building a new rectangle (brick) only takes place when the movement of price exceeds threshold. Size of rectangle is always equal. For instance, base size is 10 points, whereas growth happened for 20 points, then two rectangles will be drawn. In case of growth of price, the figure is white (light), in case of decline – that is black (dark).
Building of any built brick can take uncertain period of time. If the price is found in a narrow range, did not drop down and grow for threshold value, then the chart will remain unchained within entire period. If price change is rather prompt, then more probably it will lead to occurrence of a few new bricks at once, all of them will correspond to one period of time.