What is a Renko Chart? Definition, Formula, and Example
A Renko chart is a Japanese price-only chart that prints a new fixed-size brick each time price closes beyond the prior brick by that brick's value, stripping time and minor noise from the visual to expose trend structure.
Plain-English Definition
A Renko chart is a Japanese charting technique — the name comes from *renga*, "brick" — that ignores time entirely and plots a new brick only when price has moved a predefined amount beyond the prior brick. The result is a clean staircase of green and red blocks with no gaps, no wicks, and no intrabar noise. Five quiet sessions and one violent session can produce the same Renko output. The chart shows movement, not duration.
How It's Calculated
Renko construction follows three rules:
1. Choose brick size. Either a fixed dollar amount (e.g., $2 for SPY) or an ATR-based dynamic value (commonly 14-period ATR).
2. New brick in trend direction prints when the close exceeds the prior brick's close by exactly one brick size.
3. Reversal brick prints when the close moves two brick sizes in the opposite direction from the prior brick's close. This anti-flip rule prevents single ticks from reversing the chart.
Each brick is drawn at a 45° angle, stacked diagonally. Sequential same-color bricks indicate a sustained trend; alternating colors indicate consolidation.
Worked Example
Set SPY to $2 bricks. SPY closes at $500 — a green brick spans $498→$500.
- Price rises to $502.00 → new green brick ($500→$502).
- Price rises to $503.50 → no new brick (didn't clear $504).
- Price rises to $504.00 → new green brick ($502→$504).
- Price drops to $501.99 → no reversal brick (needs $500 close = 2 bricks below $504).
- Price drops to $500.00 → first red brick prints ($502→$500).
A six-hour session that traded $498–$505 might produce three green bricks and zero red, whereas a violent two-minute spike to $510 and back to $500 would print five green bricks then four red — same time elapsed, very different chart.
When Traders Use It
- Trend filters. A run of 5+ consecutive same-color bricks defines a trend regime; many systematic traders take signals only when the brick color and signal align.
- Breakout confirmation. Renko ignores false intraday spikes — a brick only confirms when the move sustains beyond the brick threshold.
- Pairing with momentum indicators. RSI and MACD on Renko bars produce far fewer crossovers than on time-based charts.
- Crypto and futures. ES overnight sessions look identical to RTH sessions on Renko — the time gap disappears.
Limitations and Common Misconceptions
- The last brick is not tradeable. It is "in progress" until price closes through the next threshold. Backtests that assume entry at the brick boundary print false equity curves.
- Time information is lost. You cannot tell whether a 10-brick rally took 3 minutes or 3 weeks — earnings, news, and session opens are invisible.
- Wick and gap data is discarded. Renko cannot show overnight gaps; the price simply continues through them.
- Brick size is everything. Halve the brick size and the chart noise quadruples. Most retail Renko losses come from too-small brick settings.
- Renko is not predictive. It is a noise filter, not a forecasting tool. Sustained trends still reverse.