Renko- An Indicator or A Charting Method

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I came across this article on one of the article submission sites and it got me thinking. Is Renko Charting actually ‘charting’ or a type of ‘indicator’ wrapped up in a chart.

Renko Charting Method – How a Renko Chart Can Help Your Forex Trading

By: Chris Dudley

The renko charting method is a unique form of technical analysis originating from Japan. They can be helpful to determine support and resistance levels. Learn more about them in this article.

The renko charting method gets its name from “renga” which is the Japanese word for bricks.

How Does It Look?

Of course this is difficult to describe in words, but it basically gives you buy and sell signals. It is very simple and looks like a triangular oscillating wave. It moves up in a straight line and then down in a straight line, that’s it.

The idea is that you can filter out all the minor movements so this renko chart just gives you the main trend information and when to enter and exit in order to profit.

How Is It Calculated?

It’s based on closing prices and the degree to which they are different.

Like many indicators, there is a variable that you can play with.

Increase the accuracy and you become more susceptible to minor temporary movements.

Decrease the accuracy and you could enter trades too late and become victim to bad timing on sudden reversals.

Support And Resistance

Perhaps better than a simple tool to generate signals, the renko charting method gives you another method of calculating support and resistance. You can modify the formula according to the market that you are in and backtest the data to come to a suitable value to use going forward.

How To Use It

Again, I must reiterate that you use this as a general indicator of support and resistance. Because this is a lagging indicator you could suffer from a whipsaw effect if you try to use this as a basis for signals.

It is still a useful method because it strips bare the original chart into the simple variables of support and resistance and filters out all the “noise”.

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Article Source: Charting Method – How a Renko Chart Can Help Your Forex Trading

As the article suggests Renko Charts defnitely filter price to make support and resistance easier to spot but is that not what “indicators” do? Do they not filter data to a set criteria, whether that be the length of a moving average or distance between two moving averages (MACD).

I think ulimately, the charting method and indicators applied to that chart are very closely linked. Applying a indicator to a bar chart may not be much different than just viewing a renko chart.

Obviously Renko charts are designed to ignore “time” completely. Range bars are very similar but they will continue to plot as long as the price trades between the chosen range size but if the price flip-flops between the same range and price moves sideways bars will continue to print. This will effect any indicators that you have attached to the chart. So something that is not meant to be time based becomes time based. (Although not in the strict terms of ‘time’ as most know it).

And this is where renko are different…they filter everything other than a range above/below the last high/low. This in my opinion makes Renko as much as an indicator in it’s own right as any other traditional indicator that filters data. However, I do acknowledge most charting styles filter price in one way or another and thus comes back to my point that charting and indicators are probably more similar than we like to admit.

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