Renko Chart Trading: Choosing Brick Size, Using ATR and Filtering Noise

Most charts in India are drawn by the clock. A new candle every five minutes, every day, every week, whether or not anything interesting happened. Renko chart trading throws that clock away. A new brick shows up only when price moves by a fixed amount, and if it doesn’t, the chart simply sits still. For anyone who has stared at a choppy 15-minute chart and lost the plot, that’s the appeal.

This guide covers how Renko bricks are built, how to choose a brick size (fixed or based on Average True Range), how traders read the signals, and where the method quietly lets you down. We lean on Investopedia’s Renko chart explainer and the StockCharts ChartSchool page on Renko charts for the rules. Every stock price in our examples is made up, purely to show the arithmetic.

What a Renko chart actually is

Renko charts come from Japan. Investopedia says the name is thought to come from renga, the Japanese word for bricks, which is exactly what the chart looks like: a staircase of equal-sized blocks. Each brick stands for a fixed price move. Rising bricks are usually drawn white, hollow or green, and falling bricks black or red.

Three things set a Renko chart apart from the candlestick charts most of us grew up on:

• Time isn’t fixed. There’s still a date axis, but it’s irregular. One brick might take weeks to form; several might print in a single session.
• Every brick is the same size. That size is called the box size or brick size, and you choose it.
• One brick per column. Bricks step up or down at a 45-degree angle. You never see two bricks sitting side by side.

StockCharts compares Renko to Point & Figure charts for this reason. Both ignore time and only care whether price has moved far enough to matter.

How Renko bricks are built: a worked example

Let’s build one by hand. Take a hypothetical Stock A, a ₹20 brick size, and closing prices only. The chart starts at ₹1,000.

Here’s the rule we’re following. To add a brick in the same direction, the close has to clear the top (or bottom) of the last brick by one full brick. To add a brick in the opposite direction, the close has to travel two bricks’ worth from the top of the last brick, because the new brick is drawn below (or above) the previous one, never next to it. Investopedia walks through the same logic with a $10 stock and a $0.25 box.

Twelve sessions, six bricks: five up, one down. Look at what disappeared. On a daily candlestick chart, days 5 and 6 would show a ₹19 pullback from ₹1,045 to ₹1,026, about 1.8%, the kind of dip that shakes people out of a good trade. On the Renko chart it doesn’t exist. The trend just pauses and then carries on.

Notice day 10 too. Stock A fell ₹31 from ₹1,102 to ₹1,071, yet no red brick appeared. It took day 11’s close at ₹1,055 to finally flip the colour. That lag is the price you pay for the clean picture, and we’ll come back to it.

One more detail. If a stock jumps ₹45 in one session, from ₹1,000 to ₹1,045, the chart draws two bricks (1,000 to 1,020 and 1,020 to 1,040) and ignores the leftover ₹5. Bricks are only ever whole.

A Renko chart doesn’t care how long the market took to get somewhere. It only cares whether it got there.

Choosing a Renko brick size: fixed value or ATR

Brick size is the single most important setting, and there’s no universally right number. Investopedia puts the trade-off simply. A smaller box gives you more swings and flags possible reversals earlier. A larger box cuts the swings and noise, but it’s slower to tell you the trend has turned.

You have two ways to set it.

Fixed brick size

You pick a rupee amount, say ₹5, ₹20 or ₹50, and it never changes. StockCharts’ own examples use 10-point bricks on the S&P 500. The advantage is consistency: a brick on last month’s chart means exactly what a brick means today. The drawback is that a fixed size can go stale. If a stock that once moved ₹10 a day starts moving ₹40 a day, your ₹20 bricks will suddenly print far more often.

A practical way to think about it: scale the brick to the stock’s price and how much it normally moves. A ₹20 brick on a ₹1,000 stock is 2% per brick. The same ₹20 on a ₹4,000 stock is just 0.5%, which will turn a slow-moving large cap into a busy, noisy chart. Many traders start with a brick worth a small percentage of price, then adjust after looking at how many bricks print over a few months. That’s a starting habit, not a rule from either source.

ATR-based brick size

The second option is to let volatility set the size. Average True Range (ATR), introduced by J. Welles Wilder Jr., measures how much an asset typically moves. As Investopedia’s ATR guide explains, the true range for a day is the largest of three numbers:

• today’s high minus today’s low,
• the absolute value of today’s high minus yesterday’s close, and
• the absolute value of today’s low minus yesterday’s close.

ATR is then a moving average of those true ranges, usually over 14 periods. With a previous ATR in hand, the update is: (previous ATR × (n − 1) + today’s true range) ÷ n.

A quick hypothetical. Stock A closed at ₹995 yesterday. Today it trades between ₹1,001 and ₹1,018. The three candidates are ₹17 (1,018 − 1,001), ₹23 (1,018 − 995) and ₹6 (1,001 − 995), so the true range is ₹23. If yesterday’s 14-period ATR was ₹22, today’s ATR is (22 × 13 + 23) ÷ 14 = 309 ÷ 14, or about ₹22.07. On an ATR-based Renko chart, that becomes the brick size.

StockCharts adds an important wrinkle. Its default ATR uses 14 periods, and the brick size is based on the ATR value when the chart is drawn. When ATR changes the next day, the new value is used, so the whole chart can re-draw. In their example, the same S&P 500 chart had bricks worth 12.05 points when it ended on June 10 and 20.55 points when it ended on April 15. If you see your Renko history shifting around, that’s why. It also means a level you marked last week might not sit on a brick edge anymore.

Our take: ATR bricks suit people who switch between many stocks and want each chart scaled to its own volatility. Fixed bricks suit people who watch the same few names and want levels that stay put.

Closing price or high-low range?

StockCharts lets you build Renko bricks from closing prices or from the high-low range. Closing prices give one data point per period and a calmer chart. The high-low range uses two data points per period, which makes the chart fluctuate more and print extra bricks. If you trade off end-of-day data, closes make sense. If you want more sensitivity, high-low will give it to you, along with more false starts.

Investopedia also points out that the timeframe underneath matters. A Renko chart built on weekly closes uses weekly closing prices to decide whether a brick forms, so it reacts far more slowly than one built on 5-minute closes, even with the same brick size.

Reading Renko signals

Once the bricks are on screen, the reading is fairly simple. That’s the point.

Colour change. The basic signal is a switch in brick colour. Investopedia’s example: a trader might sell when a red brick appears after a series of rising white bricks.

Buying pullbacks in a trend. In a clear uptrend full of green bricks, a trader may go long when a green brick prints after one or two red ones. In a downtrend, the mirror image applies: wait for a green pullback brick, then look for the next red brick to go short. Investopedia frames the exit as the first brick in the opposite direction.

Two-brick reversals. Some traders wait for two or more bricks in the new direction before acting. StockCharts describes a two-brick reversal as a way to spot a trend change, with its example showing two white bricks breaking above short-term resistance after a run of black ones.

Support and resistance. With the noise gone, troughs on a Renko chart can mark support and peaks can mark resistance. StockCharts notes you can also draw Fibonacci retracements on Renko charts. If levels are new to you, our guide to technical analysis for Indian stocks covers how to find and use them.

Moving averages on bricks. Here’s a detail people miss. A 10-period moving average on a Renko chart is the average of the last 10 Renko values, not the last 10 trading days. Any indicator you put on a Renko chart is calculated from bricks, so it won’t match the same indicator on a normal chart. StockCharts says chartists can typically use shorter moving averages on Renko because the small moves are already filtered out.

Renko vs Heikin Ashi

Both are Japanese, both make trends easier to see, and both get confused with each other. The difference is in the construction. Renko uses a fixed box amount and ignores time. Heikin Ashi still plots one candle per period, but each candle is built from an average of the current and previous period’s open, high, low and close, so candles come in different sizes. We go deeper on that second method in our piece on Heikin Ashi vs candlestick charts.

In practice, Heikin Ashi keeps you on a clock and smooths the candles. Renko takes you off the clock entirely. If you trade with time-based exits, say squaring off intraday positions before the close, Heikin Ashi may fit your routine better.

Where Renko charts let you down

No chart type is free, and Renko has some sharp edges.

• Lost detail. A stock that ranged for weeks might show up as one brick, or none. Highs and lows are ignored on a close-based chart, and that’s a lot of information to throw away.
• Late exits. Go back to day 10 in our table. Stock A was ₹31 off its high and the chart was still green. Investopedia warns that because only closes count, price can break significantly before a new brick forms, sometimes too late for a manageable loss. That’s why traders still use fixed-price stop-loss orders and don’t rely on Renko signals alone.
• Whipsaws. In sideways markets, bricks can flip colour too early and too often. Investopedia calls this the whipsaw effect.
• Gaps hide inside bricks. A big overnight gap on results day can print several bricks at once. The chart looks orderly. Your fill at the open won’t have been.
• ATR re-draws. As covered above, an ATR-based chart can change shape as volatility changes, which makes backtesting on a chart you’re looking at today tricky.

The clean staircase on a Renko chart is a summary, not a record. Your stop-loss lives in the real market, gaps and all.

A simple Renko checklist for NSE traders

1. Decide your timeframe first. Daily closes for swing trades, shorter intervals only if you’re actually trading intraday.
2. Pick a brick size and stick with it for a while. Start with ATR (14) if you’re unsure, or a fixed value scaled to the stock’s price, then judge it by how many bricks print over a few months.
3. Use bricks for direction, not for exact entries. Check the regular candlestick chart for the actual levels, gaps and wicks.
4. Confirm with something else. Both sources say to use Renko alongside other tools. A trend-following indicator such as the Supertrend indicator, or volume, can help filter false flips.
5. Put a real stop in the market. Set it at a fixed price based on your risk, not “when the next red brick prints”.

The bottom line on Renko chart trading

Renko charts strip a market down to one question: did price move far enough to count? For trend followers that’s useful, because it makes pullbacks look like pullbacks and keeps you in a move longer. The catch is that the chart reacts late, ignores highs and lows, and changes with your brick size. Choose that size deliberately, keep a candlestick chart open next to it, and treat every brick as a summary rather than the full story.

Disclaimer: This article is for information and education only and is not investment advice or a recommendation to buy or sell any security. Stock A and every price, ATR and brick value in the examples are hypothetical and used only to show how the calculations work. Trading involves risk, including the loss of capital. Please consult a SEBI-registered investment adviser before making trading or investment decisions.