The name of this chart comes from the Japanese word ""renga"" which means “a brick”. Renko chart is a synthesis of candlesticks and lines of the Point and Figure charts. A base value for the chart corresponding to the size of the block (the brick height) should be set up. It is plotted in the following way: if the price moves higher for such a distance from the highest level of the last brick, within which n-base values are enclosed, the n-quantity of white bricks are plotted. When the price moves downwards for a distance within which n–quantity of base values are found from the last brick lowest level, a chain of black bricks is plotted.
Below, the daily price chart and the corresponding Renko chart (the base = 5) are shown. Markers in the price chart illustrate the moments of chain formation out of the bricks on Renko chart (the numbers near them denote the quantity of the bricks in the chain).
Image. 1. Renko Chart.
The signal is generated when the series of bricks of one color is changed for the brick chain of another color: from white to black means to sell, from black to white means to buy.