How To Use Renko Charts For Intraday Trading

How To Use Renko Charts For Intraday Trading

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Renko charts are a unique charting technique used by intraday traders to identify trends and reversals. Unlike traditional charts that plot price against time, the Renko chart strategy plots price movement against brick formation, where each brick represents a fixed minimum price movement of securities. This filters out market noise and allows traders to clearly see the underlying price trend in the share market. 

What is a Renko Chart?

Renko charts provide a distinct and strong approach to intraday trading, enticing traders with their ease of use and ability to filter out market noise. Renko charts, derived from the Japanese word for "bricks," visually portray price fluctuations based simply on price action, ignoring time and volume. Renko charts are perfect for traders looking for a clear and uncluttered market perspective because of this distinguishing trait.

Renko charts are beautiful because they may indicate key price patterns, trends, and support/resistance levels with surprising clarity. Renko charts remove the noise of modest price swings, allowing traders to focus on significant price moves and make more informed trading decisions. Understanding how to use Renko charts for intraday trading effectively can provide a vital edge in the volatile world of financial markets, whether you're a rookie trader or an experienced professional. 

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Table of Content

  1. What is a Renko Chart?
  2. Why Use Renko Charts?
  3. Steps on How to Use Renko Charts
  4. Pros and Cons of Renko Charts
  5. Understanding Renko Chart Strategies & Techniques
  6. Renko Chart Analysis Techniques

Why Use Renko Charts?

To use Renko charts for intraday trading, you must follow a specific set of steps and develop a suitable strategy. Here's a guide on how to use Renko charts effectively for intraday trading:

  • Traders use Renko charts because they provide a more streamlined view that facilitates the identification of actual trends. This is due to the fact that time-based chart styles introduce "noise" from ongoing changes, making market trends difficult to see from the trees.
  • This can assist traders in recognising a strong trend when one arises. Therefore, Renko charts are useful for identifying levels of support and resistance.
  • Renko charts can have drawbacks, though. For instance, compared to candlestick charts, they provide far less information on the market's opening, closing, high, and low values as they neglect the time dimension. Thus, they are frequently useless for short-term trading strategies like scalping and day trading.

Steps on How to Use Renko Charts

You can check the following steps to use Renko chart:

  • Step 1: Determine the Renko Brick Size 
    Begin by finding the brick size. This is the minimum price movement that will print a new brick. A larger brick size will filter out more noise. For intraday trading, a brick size between 0.5% to 1% of the asset price is quite common.
  • Step 2: Identify the Bricks Direction 
    A new green (or white) brick forms when the price rises by the brick size. A new red (or black) brick forms when the price falls by the brick size. A series of bricks in one colour indicates the trend direction. Upward-sloping green bricks show an uptrend while downward-sloping red bricks indicate a downtrend.
  • Step 3: Spot & Confirm Reversal 
    When the brick colour changes from green to red or vice versa, it signals a potential trend reversal. The earlier the reversal is spotted, the better for the trader. Now to confirm the trend trader can use other indicators such as MACD or RSI to confirm the Renko reversal before entering a trade. 
  • Step 4: Risk Management 
    For managing risk, you can place stop-losses below key support/resistance levels. Update stop-losses when the trend resumes in the other direction.

Pros and Cons of Renko Charts

Here are the pros and cons of Renko Charts in the following table:

Pros of Renko ChartCons of Renko Chart
Filters out noise. Prone to repainting. 
Determines support/resistance of Securities.Difficult to judge the timing of moves.
Useful across assets and timeframes.Gives limited previous data. 
An effective tool to identify trends.It needs confirmation from other indicators.

Understanding Renko Chart Strategies & Techniques

Here are some strategies and techniques for how to trade using Renko charts:

  • Identifying Trend Reversals with Renko Charts: Renko charts make it easier to identify trend reversals by focusing solely on price movements rather than time. Look for the formation of consecutive opposite-coloured bricks. For example, a series of bullish (green) bricks followed by bearish (red) bricks could indicate a potential trend reversal. Combine this pattern with other technical indicators or Intraday Trading chart patterns for confirmation.
  • Using Support and Resistance Levels in Renko Chart Analysis: Support and resistance levels play a crucial role in Renko chart analysis. Identify key support and resistance levels by repeatedly observing areas where the price bounces off. These levels might serve as possible entry and exit points for trading. Pay attention to price breakouts or breakdowns from these levels, as they can signal significant market moves.
  • Spotting Breakout Opportunities with Renko Charts: Renko charts can help identify breakout opportunities by focusing on price volatility. Look for a series of bricks of the same colour, indicating a strong trend. When a brick of the opposite colour appears and breaks the trend, it may signal a breakout opportunity. Combine this with other indicators like volume or momentum oscillators to confirm the breakout.

Renko Chart Analysis Techniques

Here are some key techniques for effectively using Renko charts in intraday trading:

  • Renko Chart Setting for Intraday: You must first decide on the brick or box size to create Renko charts for intraday trading. The brick size shows the smallest price movement required to produce a new brick on the chart. It should be selected based on the instrument's volatility and your trading style. A smaller brick size captures minor price changes, whereas a bigger one filters out noise and focuses on significant price changes.
  • Analysing Price Patterns and Formations: Renko charts aid traders in the identification and analysis of price patterns and formations. Renko charts can use traditional patterns like support and resistance levels, trendlines, and chart formations like double tops, double bottoms, and triangles. These patterns can be used to generate trade entry and exit indications.
  • Incorporating Indicators with Renko Charts: While Renko charts are generally used to analyse price activity, traders can supplement their research with indicators. Moving averages, oscillators, and volume-based indicators are common with Renko charts. However, because of the unique character of these charts, indicators may react differently than on standard charts.
  • Applying Key Technical Analysis Tools to Renko Charts: Renko charts can efficiently use technical analysis methods, including Fibonacci retracements, pivot points, and trend analysis. These tools can assist in determining trend direction and prospective price objectives, as well as identifying potential regions of support and resistance.

Finally, using Renko charts for intraday trading provides various advantages and significant insights. Renko charts give clarity and help filter out market noise by focusing on price changes rather than time. To improve your Renko chart analysis skills, you must practise and perfect your strategies. Consider looking into other resources and information on Renko chart approaches to increase your comprehension. Begin your trading career today with the BlinkX trading platform, where you may efficiently implement Renko chart methods. 

Read More: 
Technical Stock Charts & Their Types

FAQs on How to Use Renko Charts

A Renko chart is a technique used in technical analysis that focuses on price movements, ignoring time and volume, by plotting bricks or boxes of fixed size.

To set up Renko charts for intraday trading, choose a suitable brick size based on the volatility of the instrument you are trading, and then apply the Renko chart settings in your preferred trading platform.

A common Renko chart strategy for intraday trading involves using price breakouts from consolidation patterns, such as double tops or bottoms, as signals to enter trades.

When analysing Renko charts for intraday trading, focus on the patterns and formations that emerge, such as trend lines, support and resistance levels, and chart patterns, to identify potential trade setups.

The advantages of using Renko charts for intraday trading include providing a clear representation of price trends, filtering out market noise, and facilitating the identification of key support and resistance levels.

Well, there is no fixed rule to set the box in the Renko chart. You can set the box size between 0.5% and 1% of the average trading price of the asset. You can also change the box size dynamically as per the change in the price of securities.