Short answer: renko charts are built from fixed price movements rather than time. A new brick prints only when price moves a set amount beyond the previous brick, so sideways drift produces nothing at all. The result is a chart that strips out market noise and displays trends as clean runs of same-coloured bricks.
How the bricks are built
Choose a brick size, for example one point. A new brick appears only when price moves one full point beyond the close of the last brick.
Two rules govern the direction. To continue in the same direction, price must move one brick size beyond the previous brick. To reverse, price must move two brick sizes in the opposite direction, because the first brick size only returns to the previous level.
That asymmetry is why renko charts look so clean. Small counter-moves produce nothing, and a reversal requires a genuine change of direction rather than a wobble.
| Property | Candlestick chart | Renko chart |
|---|---|---|
| Built from | Time periods | Fixed price movement |
| Bars during sideways drift | Many | None or very few |
| Reversal requirement | Any move | Two brick sizes |
| Shows exact highs and lows | Yes | No |
| Time axis | Even | Uneven and compressed |
| Noise level | High | Very low |
Choosing a brick size
This is the only real setting, and it changes everything about the chart.
Fixed size. A number chosen manually, such as ten ticks. Predictable and easy to reason about, but it does not adapt when volatility changes.
Volatility based. Set the brick to a fraction of a recent average range. This adapts automatically, which usually produces more consistent behaviour across different market conditions.
Percentage based. Useful for instruments whose price level changes substantially over time.
Smaller bricks produce more detail and more false reversals. Larger bricks produce cleaner trends and later signals. A practical starting point is a brick roughly a quarter to a third of the instrument's average daily range for swing work, and considerably smaller for intraday use.
One caution worth stating plainly: changing brick size changes the entire chart's history, including the signals it appears to have given. It is very easy to select a brick size that made past signals look excellent, which is curve fitting rather than analysis.
Reading trend analysis on a renko chart
Interpretation is deliberately simple.
A run of same-coloured bricks is a trend. A change of colour is a potential reversal, and because reversals require two brick sizes, they carry more weight than a colour change on a candlestick chart.
Support and resistance are easier to see because the chart removes the clutter that usually obscures them. Levels where several reversals occurred stand out clearly.
Chart patterns still form. Double tops, triangles, and channels all appear, and many traders find them easier to identify because the noise between the structural points has been removed.
Benefits and where they come from
- Noise reduction. The main benefit. Sideways periods that produce dozens of candles produce nothing here.
- Clear trend visualisation. Runs of colour are unambiguous, which helps traders who exit good positions too early.
- Simpler support and resistance. Fewer bricks means fewer false levels.
- Mechanical exit rules. Holding while the colour is unchanged is a rule that can be followed without judgement.
- Fewer decisions. The chart simply does not update during quiet periods, which mechanically reduces trading frequency.
Limitations you must account for
- Lag. A reversal requires two brick sizes of movement, so you always give back that distance before the chart acknowledges a turn.
- Prices are not exact. Brick boundaries are derived, so the highs and lows shown are not the actual highs and lows traded.
- Time is distorted. A single brick might represent one minute or six hours, which makes any time based analysis difficult.
- Gaps disappear. Overnight gaps are absorbed into the brick sequence, hiding information that matters for risk.
- Brick size sensitivity. Results change substantially with the setting, and the temptation to optimise it against history is strong.
- Stops must come from real prices. A stop placed at a brick boundary sits at a price that may never have traded.
That last point is the practical one. Read direction on the renko chart and set entries, stops, and targets from a standard chart of the same instrument.
Trading strategies that use renko charts
- Trend confirmation filter. Take signals from your usual method only when the renko trend agrees. This uses the chart for what it is genuinely good at.
- Colour flip entries. Enter on the first brick of a new colour, with a stop beyond the reversal point. Simple and mechanical, though the lag is real.
- Breakout of a consolidation. Alternating bricks in a narrow band indicate balance. A run of three or more in one direction marks the resolution.
- Higher timeframe direction. Use a large brick size for direction and a standard chart for timing.
Position sizing does not change with charting style. Leverage magnifies both outcomes regardless of how the price is drawn, as the SEC's investor guidance on margin sets out. Traders working under a prop firm evaluation should note that a cleaner chart reduces the number of trades taken but not the cost of a wrong one, and that a fixed daily loss limit applies to actual fills rather than to brick boundaries. Pivex publishes those limits before an attempt begins, which makes it straightforward to size positions from the real chart while reading direction from the renko one.
Next step: open the same instrument as a candlestick chart and as a renko chart with a brick set to a quarter of its average daily range. Compare where each would have signalled a trend change over the past three months, and the trade-off between clarity and lag becomes obvious immediately. If you are running a Pivex evaluation, keep the smoothed chart for direction and the standard one for stops, because the limits apply to real fills rather than to brick boundaries. For the practical side of that, see our guide to the best indicators for day trading.
Related guides: breakout trading strategies and trading on Match-Trader.
Before participating, review Pivex's current program rules and decide whether a simulated proprietary trading evaluation fits your experience and risk limits. Participation does not guarantee a reward, income, or any particular trading result.