Introduction
Renko charts are a method of displaying asset price movements by filtering out minor price movements. By removing those small fluctuations, it may be easier to see price trends using a Renko chart, which makes this feature a preferred chart for some traders.
Renko Charts
The most important step in creating Renko charts is determining the brick size. You can set it at $0.10 in the stock market or 10 pips in the foreign exchange (forex) market. A brick forms on a Renko chart once the price moves by that value and not before.
Comparison to Candlestick Charts
The biggest difference between Renko charts and candlestick charts is the smoothness of the Renko chart. The same applies when compared to an OHLC (Open, High, Low, Close) chart. If you set Renko bricks to a value of $0.75, then each Renko brick is exactly $0.75, giving the chart a uniform appearance. On a candlestick chart, each candlestick body and its wicks (also known as “tails” or “shadows”) appear differently.
Trading Using Renko Charts
Renko charts are very useful for day traders to identify trends, support and resistance areas, breakouts, and reversals. The simplicity of this type of chart can make it easy to see those price movements and signals for making trades. However, due to the fundamental nature of price movement on a Renko chart, traders often use technical indicators to provide additional information on the chart and enhance or warn against buy and sell signals.
Among these indicators, the Moving Average Convergence Divergence (MACD) crossover is an example of measuring price momentum that gives a bullish signal when the MACD line crosses above the signal line and a bearish signal when the MACD line crosses below the signal line. Both lines are created using moving averages that are sequenced over different time intervals, with more recent prices given greater weight.
Source: https://www.thebalancemoney.com/technical-analysis-renko-chart-basics-1031113
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