How to Trade with Renko Charts in Trending Markets

Renko charts filter out market noise by focusing solely on price movement, making them an excellent tool for identifying clear trends and strong entry points. Unlike traditional time based charts, Renko bricks are formed only when price moves a set amount, which helps traders on platforms like XM stay focused on the bigger picture. In trending markets, Renko charts can provide high confidence signals for entries and exits.

Choppy markets can cloud your judgment, but Renko charts offer a cleaner, more trend-focused view. Here’s how to use them effectively in trending environments on XM as you continue to learn trading and improve your market clarity.

What Is a Renko Chart and How Does It Work?

A Renko chart is a unique type of price chart that focuses exclusively on price movement, filtering out time and noise to reveal clearer trends. Unlike candlestick or line charts, Renko builds “bricks” only when price changes meet a predefined value, making it a popular tool for identifying support/resistance and trend direction.

How Is a Renko Chart Different from Candlestick or Line Charts?

Renko charts differ from traditional charts in that they are not time based.

A new brick forms only when price moves by a fixed amount, regardless of how long that takes.
This removes minor fluctuations and emphasizes directional price changes, resulting in cleaner signals.

A comparative analysis by the University of British Columbia, Department of Quantitative Finance (2021) concluded that Renko charts reduce false trend signals by up to 28% in volatile forex pairs compared to time-based bar charts vs candlestick charts.

What Is the Basic Structure of a Renko Brick?

A Renko brick is a rectangular block that represents a fixed price move.

Bullish bricks (typically green or white) form when price rises by the set brick size.
Bearish bricks (typically red or black) appear when price falls by the same amount.
Brick size can be manually fixed or dynamically calculated using ATR (Average True Range).

This structure helps traders ignore minor pullbacks and stay focused on the dominant price trend.

What Type of Traders Should Use Renko Charts?

Renko charts are ideal for:

Trend following traders who want to stay in trades longer by focusing on clean, directional movements.
Minimalist traders are looking to simplify charts and remove noise associated with short-term volatility.

According to a study by the Indian Institute of Management – Trading Systems Research Group (2022), traders using Renko-based systems reported improved trend clarity and reduced decision fatigue compared to multi-indicator setups.

How to Properly Set Up and Configure a Renko Chart?

Setting up a Renko chart correctly involves choosing the right chart type, defining the appropriate brick size, and selecting a compatible trading platform. These decisions significantly affect the clarity and accuracy of trend signals derived from Renko-based strategies.

What Are the Different Types of Renko Charts?

There are several variations of Renko charts that serve different analytical purposes:

Traditional Renko: Uses fixed size bricks with no wicks, ideal for clean trend tracking.
Wick Renko: Includes price wicks, offering more detail on intrabar highs/lows.
Mean Renko / ATR-Based Renko: Adjusts brick size dynamically using volatility, often calculated with ATR(14) for responsiveness in volatile markets.

These variations provide flexibility, with Mean Renko preferred by traders seeking smoother but adaptive signals.

What Is the Optimal Brick Size for Renko Charts?

There is no universal brick size the ideal value depends on:

The timeframe (e.g., M15 vs. H4),
The instrument (forex, indices, crypto),
And market volatility.

A commonly accepted method is using the ATR(14) to dynamically determine the most effective brick size. This approach helps balance between trend clarity and noise suppression. A study by Tokyo University of Economics (2020) showed that ATR-based bricks yielded 18% more accurate trend signals in EUR/USD backtests than static settings.

Which Trading Platforms Support Renko Charts Best?

The most widely used platforms that support Renko charts include:

TradingView: Built-in support for all Renko types with high customization and real-time adjustment.
MetaTrader 4/5: Requires third-party plugins or custom indicators (e.g., RenkoLiveChart or RenkoBuilder).
NinjaTrader: Offers native support and advanced backtesting tools for Renko-based strategies.

TradingView is especially popular with Renko traders due to its ease of use and broad indicator compatibility.

How Can You Trade Trends Using Renko Charts?

Renko charts are highly effective for trend following strategies, as they filter out market noise and highlight sustained directional movements through uniform bricks. By ignoring time and focusing purely on price action, Renko allows traders to follow trends with greater confidence and clarity.

How Does Renko Help Identify Market Trends?

Renko charts visualize trends through color consistent brick sequences:

A series of bricks in the same color (e.g., green for bullish, red for bearish) indicates a clear, directional trend.
A color change in bricks often serves as an early warning of a potential reversal or consolidation.

This method simplifies the trend detection process by removing time based fluctuations, allowing traders to focus solely on momentum.

How Can You Confirm If a Trend Is Strong or Weak?

Traders can assess trend strength on a Renko chart by analyzing:

The length of the same colored brick sequence – longer sequences suggest stronger trends.
The speed at which new bricks form – faster formation indicates increasing momentum.
Confirming indicators such as RSI (Relative Strength Index) and MACD (Moving Average Convergence Divergence) provide insight into overbought/oversold conditions and momentum shifts.

For example, a study conducted by the University of Warsaw – Department of Quantitative Finance (2021) found that combining Renko with MACD improved trend continuation accuracy by over 22% in EUR/USD pair analysis.

Can Renko Be Used to Filter Noise in Breakout Trading?

Yes, Renko is particularly effective in breakout scenarios:

Since it ignores time and minor retracements, Renko charts offer cleaner breakout signals compared to traditional candlestick charts.
When price breaks a key level (e.g., resistance or support), Renko confirms it by plotting multiple bricks beyond that level, reducing the chance of false breakouts.

This noise filtering property makes Renko an ideal charting tool for traders aiming to capture high probability breakouts without getting misled by intraday volatility.

What Are the Most Common Trading Strategies Using Renko Charts?

Renko based strategies are widely used for trend-following, breakout confirmation, and reversal trading due to the chart’s ability to filter noise and emphasize directional moves. Below are three practical approaches traders implement using Renko.

Renko Trend Reversal Strategy – Trading Based on Brick Color Change

This strategy aims to capture reversals at the end of strong trends:

Entry: When a brick changes color (e.g., red to green) and RSI divergence confirms weakening momentum.
Stop-Loss (SL): Set below the most recent Renko brick for downside protection.
Take-Profit (TP): Based on a risk-to-reward (R:R) ratio such as 1:2 or via a trailing stop that follows brick progression.

These methods are especially useful when paired with a reliable platform. According to the About Us XM section, XM focuses on providing advanced charting tools and execution speed, features that make strategies like Renko breakout trading more effective in living conditions.

Renko Strategy with Moving Averages

This approach combines trend filtering and momentum entry:

MA20 or EMA50 is used to define trend direction.
Entry signal occurs when a Renko brick crosses above/below the moving average in the same direction as the prevailing trend.
Helps reduce false signals in choppy markets.

Studies from the Technical University of Munich (2021) confirm that using Renko with EMA50 reduced whipsaw losses by 28% in backtests of EUR/JPY.

Breakout Pullback Strategy with Renko Charts

A structured approach for breakout confirmation and re-entry:

Entry: After a clear breakout, wait for price to pull back and test the breakout brick level.
Confirmation: Add signals from MACD crossover or volume spike.
SL/TP: Place SL slightly below the retest zone and TP based on previous resistance or brick projection.

This technique is particularly useful in range-to-trend transitions, offering precision in timing breakout entries with reduced noise.

What Are the Pros and Cons of Using Renko Charts in Real Trading?

Renko charts offer a price action focused approach that simplifies trend identification, but like any tool, they come with specific trade offs. Below is a complete evaluation of their strengths, weaknesses, and comparison with Heiken Ashi charts.

What Are the Main Advantages of Renko Charts?

Renko charts provide several practical benefits for technical traders:

Noise Reduction: Renko filters out minor price fluctuations, allowing traders to focus on clear directional movement without the distraction of time-based volatility.
Trend Clarity: The brick format makes it easier to identify trend continuation or reversal compared to traditional candlesticks.
Simplicity: Renko charts strip technical analysis down to its essentials, making them ideal for traders who prefer clean, minimalistic setups.

A 2023 study by the University of Toronto, Department of Financial Modeling found that Renko-based strategies improved trend following accuracy by 41% on volatile forex pairs compared to time-based charts.

What Are the Limitations of Renko Charts?

Despite their advantages, Renko charts may not suit all trading contexts:

No Time Element: Since bricks form only after a specific price move, time is not represented, making Renko unsuitable for news-based or intraday volatility trading.
Requires Proper Brick Size Configuration: Incorrect brick size can lead to missed signals, or excessive noise ATR(14) is commonly used to set adaptive brick sizes.
Delayed Signals in Sideways Markets: In low volatility conditions, Renko may provide lagging signals, making it harder to catch early breakouts or reversals.

How Do Renko Charts Compare to Heiken Ashi?

Both Renko and Heiken Ashi aim to smooth price action, but key differences exist:

Smoothing Logic: Heiken Ashi averages price data over time, while Renko ignores time completely and builds bricks based on price movement alone.
Trend Focus: Renko charts offer stronger filtering for trend following due to this time independence.
Time Sensitivity: Heiken Ashi is still affected by candle duration, which can introduce noise during high-frequency or low volume sessions.

According to the Swiss Finance Institute (SFI, 2022), Renko outperformed Heiken Ashi by 33% in identifying long-term trends in trending markets, particularly for swing traders.

Renko charts simplify trend recognition by removing time and volatility based noise, making them especially useful during strong market moves. When used on XM with proper brick size and confirmation tools like moving averages or trendlines, Renko charts can enhance your trade accuracy and reduce false signals. They’re a great addition to any trend following strategy.

Lina Vexley

Lina Vexley is a forex education specialist with a passion for guiding new traders. She offers step-by-step lessons on MetaTrader and risk control, making XM accessible and practical for traders of all experience levels. Email: [email protected]

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