Renko Charting
The Renko charting method is thought to have acquired its name from "renga" which is the Japanese word for bricks. Renko charts are similar to Three Line Break charts except that in a Renko chart, a line (or "brick" as they're called) is drawn in the direction of the prior move only if prices move by a minimum amount (i.e., the box size). The bricks are always equal in size. For example, in a 5-unit Renko chart, a 20-point rally is displayed as four, 5-unit tall Renko bricks.
Kagi charts were first brought to the United States by Steven Nison when he published the book, Beyond Candlesticks.
Interpretation
Basic trend reversals are signaled with the emergence of a new white or black brick. A new white brick indicates the beginning of a new up-trend. A new black brick indicates the beginning of a new down-trend. Since the Renko chart is a trend following technique, there are times when Renko charts produce whipsaws, giving signals near the end of short-lived trends. However, the expectation with a trend following technique is that it allows you to ride the major portion of significant trends.
Since a Renko chart isolates the underlying price trend by filtering out the minor price changes, Renko charts can also be very helpful when determining support and resistance levels.
It is critical to note that the behavior of a Renko Chart is determined by the Box Size. When trading instruments have a smaller minimum tick increment, it will be necessary to change the Box Size to a smaller value.
