Renko Charts

 
Advantages
  • As mutual fund prices are based only on the closing price and candlestick charts require the open, hi, low and closing prices. Japanese charts, like Renko, are particularly useful for analyzing stock mutual funds.
  • Easy to interpret bullish and bearish signs in the stock.

Display
The Renko chart looks similar to the Three-Line Break chart since they both have blocks. The individual blocks that form the renko chart are sometimes referred to as bricks. For a renko chart, a block is drawn in the direction of the prior move if a fixed amount has been exceeded. For example, if there is a white brick on the renko chart, the stock has to advance by a predetermined fixed amount before a new white brick can be drawn.

Important Bibliography: Of all the text books that described Japanese Charting techniques. We found the best to be:

  • "Beyond Candlesticks", written by Steve Nison. John Wiley Sons, Inc., New York, NY, 1994

We strongly encourage the use and reading of this book as it fully describes Japanese Charting techniques with pattern analysis and illustrative examples.

A Renko chart is depicted in the following figure:

Renko.gif (18203 bytes)

Construction
Renko charts are always based on closing prices. The general rules for calculating a kagi chart are:

  • Renko charts are always based on closing prices. You specify a "box size" which determines the minimum price change to display.
  • To draw Renko bricks, today's close is compared with the high and low of the previous brick (white or black):
  • - If the closing price rises above the top of the previous brick by at least the box size, one or more white bricks are drawn in new columns. The height of the bricks is always equal to the box size.

- If the closing price falls below the bottom of the previous brick by at least the box size, one or more black bricks are drawn in new columns. Again, the height of the bricks is always equal to the box size.

- If prices move more than the box size, but not enough to create two bricks, only one brick is drawn. For example, in a two-unit Renko chart, if the prices move from 100 to 103, only one white brick is drawn from 100 to 102. The rest of the move, from 102 to 103, is not shown on the Renko chart.

There are other rules and considerations when building Kagi charts. If you want to know the specifics, We strongly encourage you to obtain a copy of "Beyond Candlesticks", written by Steve Nison. John Wiley Sons, Inc., New York, NY, 1994. ISBN 0-471-00720-X