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Renko Charts Forex Revealed: Clean Signal Strategies for Better Results

Have you heard that 9 out of 10 forex traders are being tormented by market noise which results in bad trading decisions? Whereas the majority of traders are taken up in the continuous movement of the traditional candlestick charts, intelligent traders have learned a Japanese charting technique that filters out the noise and shows only the price action.

Mastering Renko charts in forex can help revolutionize the way you trade because you no longer have to be confused by time factors, but instead, you can concentrate on significant price movements. These unusual charts have enabled many traders to find cleaner trends, find solid support and resistance levels, and make more assertive trading choices in the unpredictable forex market.

What are Renko Charts and Why Would They Matter?

Renko charts are a radical way of analyzing forex. In contrast to the conventional charts which are used to chart price changes against a given time period, Renko charts are built using bricks whose formation is solely dependent on price changes. It is named after a Japanese term, renga, which translates to bricks, and this explains their aesthetic characteristics well.

The price only needs to move in a predetermined amount to form a brick, disregarding the time it took to do so at all. This inherent distinction is what makes Renko charts exceptionally strong in the hands of forex traders who desire to view the whole forest instead of just the trees.

Imagine that you are walking through the market with regular charts and you can see each heartbeat, and with Renko charts you can only see the major steps forward or backward. Each brick can be minutes, hours or even days of trading depending on market volatility and settings you choose.

Renko Charts Forex: Step by Step Guide

How to Create Your Renko Chart

The initial step is important because it entails choosing the right size of the brick of your forex pair. The most successful traders advise to put the size of the brick at about 1 percent of the price of the asset. On larger forex pairs such as EUR/USD (currently 1.0500) a 10-15 pip brick can be effective.

Nevertheless, your selection must be based on the volatility of the pair and your trading style. Day traders may use smaller brick sizes (5-10 pips) to get more of the signals whereas swing traders tend to use larger sizes (20-50 pips) to target the big trends.

Renko Signals Reading

Green bricks or white bricks denote an upward movement in price whereas red bricks or black bricks denote a downward movement in price. It is magic as you observe successive bricks of the same color. When there are a set of green bricks, it is a sign of a powerful uptrend, and a set of red bricks is an indicator of a downtrend.

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The actual power is realized when trends shift. To reverse the price has to move at least twice as far in the other direction as the brick size. This condition eliminates the noise that afflicts conventional charts.

The Ideal Brick Size of Forex Pairs

The sensitivity and the quality of the signal in your chart depend on the selection of the right size of the brick. The smaller the size of bricks, the more signals they produce and the more noise they introduce, and the bigger the size of bricks, the cleaner the trends and the fewer trading opportunities.

Strategies of Popular Brick Size

Ultra-short-term: 5-10 pips scalping of major pairs at the time of high volumes

Day trading: 10-20 pips to catch the intraday trends filtering out small fluctuations

Swing trading: 20-50 pips to ride longer term trends over multiple days

Position trading: 50+ pips to detect the significant trend shifts within weeks or months

In the case of EUR/USD, a pair tends to react to 10-15 pip brick sizes quite well during European and American trading hours when the volatility is higher. Other more volatile pairs such as GBP/JPY may need 20-30 pip brick sizes to prevent too much noise.

Effective Forex Renko Trading Strategies

Strategy of Trend Following

The plan takes advantage of the fact that Renko charts are used to show trending markets in a clear way. Once you notice three or more bricks in the same direction, then the trend is probably strong enough to trade.

Entry signal: go long when the second green brick appears above the 13-period exponential moving average, or short when the second red brick appears below it.

Exit signal: Sell positions when two back-to-back bricks occur in the opposite direction, which is a sign of a possible trend exhaustion.

Support and Resistance Strategy

Renko charts are very effective in determining the major support and resistance levels since they do not interfere with the noise that usually masks these important levels. Identify regions where price has bounced several times and there is a series of horizontal bricks.

Breakout trading: Breakout trading involves price breaking above resistance or below support and forming a strong brick. Often this marks the beginning of a new trending move. Entering should wait until a second brick goes in the breakout direction.

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Strategy of Reversal Pattern

The reversal patterns are clearer and more stable with Renko charts than with conventional charts. Classic patterns such as double tops, double bottoms, are cleaner and provide better probability setups.

The most important benefit is that there are fewer false signals. The fact that Renko bricks need a substantial price action to be formed makes the patterns that are generated more decisive and dependable.

Renko Charts Pros and Cons in Forex

Key Advantages

Noise elimination: Renko charts eliminate the meaningless price action that causes confusion in the conventional charts. Such clarity enables traders to concentrate on substantive trends instead of being sidetracked by small-time variations.

Better trend identification: The brick structure makes trends clearly evident. You are able to see the direction of a trend as soon as you look at it without having to study complicated candlestick patterns.

Improved support and resistance levels: The consistent horizontal levels provided by the bricks are more sound than those provided in time-based charts.

Important Limitations

No time details: Renko charts do not consider time at all, and this may be a problem with traders who require time details on when events took place. This constraint applies to those strategies that rely on time or session-related patterns.

Slow signals: Renko charts may be slower to indicate trend changes than traditional charts, because bricks only are drawn when there is a large price change. The reversal of early trends may be missed in the wait of confirmation.

Inadequate volume visibility: Such charts do not show any volume data and some traders believe that volume is necessary to verify price action.

Practical Advice to Forex Success using Renko Charts

Renko and Other Indicators

Intelligent traders make Renko charts more effective by using them in conjunction with additional indicators. Moving averages are especially effective, giving extra trend confirmation and active levels of support/resistance.

RSI indicator is used to determine overbought and oversold conditions, whereas, MACD can be used to affirm strength of trends and a possible reversal. But keep in mind that not all indicators will act the same way on Renko charts as on time-based charts.

The Best Trading Sessions

Renko charts are more effective when trading is at its peak and prices are more definitive. The European and American sessions generally offer the volatility that is required to form clean bricks in the major pairs.

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Renko charts should not be used in situations of low volatility such as the Asian session on EUR/USD because the price will not move enough to generate any useful indicators or long spells without a new brick.

Risk Management using Renko

Use Renko bricks to put rational stop-losses. Stop a little farther than the farthest brick on the other side of your trade. This practice makes your risk management consistent with the natural form of the chart.

In take-profit levels, find brick formations that indicate exhaustion of the trend or major resistance/support point where the price may reverse.

Real life Example: Renko EUR/USD trading

Let us take a realistic example: You are trading EUR/USD using 15 pip Renko bricks, in the London session. After a few red bricks that signify a downtrend, you observe the first green brick being created.

Instead of going into long right away, wait to be confirmed. Your entry signal is given by the second green brick above the 13-period EMA. Put your stop-loss a little below the last red brick and aim to the next major resistance level you have spotted on your Renko chart.

This would have prevented you numerous false breakouts common in the traditional candlestick analysis, and would have caught the actual trend reversal with greater timing and risk exposure.

Getting Started: What to do Next

Renko charts are a form of forex trading that gives traders an effective way to filter out market noise and find high-probability trade opportunities. They generate purer signals and more consistent trend recognition than the conventional charting techniques because of their emphasis on price change over time.

Begin by trading on your favorite forex pairs with various brick sizes. Trade on historical data to learn how to identify the trends, support, resistance levels, and reversal patterns, without risking real capital. It is important to remember that although Renko charts are very good at determining a trend, they are most effective when used with risk management and other technical indicators.

The secret is to realize that Renko charts are not magic bullets, they are advanced tools that when properly used will make you a better market analyst. Learn the fundamentals, build your plan and allow the simplicity of Renko charts to steer your forex trading activities to a more consistent profitability.

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