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The Renko chart

You obviously noticed in the previous figure that - unlike in a "normal" chart - here all the “candles” (which we call “bricks” here) are the same size. Well, this is the key point. A brick will be built and the next begins only when the price took a certain distance. For the sake of simplicity, let's talk about 50 pips (500 points) now. I mostly use this value in my strategy presented later. But why 50? I will tell you more about this later. Let’s go step by step, brick by brick now.

In this figure the rate started at 1.3500 and when it reached 1.3550, a brick was built and another one opened. Whether this brick has been built up over the course of two days or within five minutes - that does not concern us. At 1.3550 a new brick opened and let’s say that the rate fell slightly and then rose again. That initial drop is the downward leg you see in the figure.

From 1.3550 it began to build again and reached the level of 1.3600 – a new brick was built up again and the next one opened. The up and down movements in the current brick are also irrelevant for us. The last brick in this figure is not finished yet (still invalid), we only see that it is taking shape, this is why it is smaller than the other bricks. The price may be currently around 1.3610. Once it reaches the level of 1.3650, it will become valid and the next brick will open.

So, all well and good, because the example was quite simple and the price has gone in only one direction, but here is how we can go further:

What happened here a little later? As we see, around 1.3610 it reversed and the price began to fall. The beginning bullish brick disappeared and it became a candle wick. According to the rules of the Renko, two opposite bricks cannot be next to each other, so the first bearish brick started to develop at 1.3550. In other words, a new brick always starts at the right corner. Bullish in the upper right corner and bearish in the bottom right corner. So let’s suppose that the price continues to fall:

A bearish brick was built and another bearish one opened. This is a turning point on Renko. I would like to repeat once again, the things which we have just seen could have happened in minutes or even several days. So we have a horizontal time axis on the Renko chart, but it is not linear.

But let's continue with our example:

As can be seen, around 1.3450 we turned back again. We went all the way up to 1.3540 and then back down to 1.3530. Our last brick is still hesitating to be bearish or bullish. If neither down nor up there is no building brick, then the price changes look like a "wandering" doji.

Watch more:

As we see, the doji started up, it reached the level of 1.3550 and a bullish brick was formed again.

If the exchange rate moves up, our example might looks like this. Here we have four bullish bricks, which in this case is equal with 200 pips, but do not be fooled by the picture, the rise was never straight or smoothed. Many step-backs and bearish movements were also included, but according to the rules of the Renko, price has rose 4x50 pips.