BRICK VALUE


As mentioned earlier, Renko charts are categorized as noiseless and what

makes them so is the appropriate selection of the brick value. In the example

in Figure 1.7, the brick value used was 5 points, which is the difference

between each brick.The brick value selected defines the price action which the user considers is

significant enough to be captured in the chart. In Figure 1.7, for example, a

brick will be plotted only when the price has moved by at least 5 points, or

multiples thereof.

So if price moves from 100 to 105, a bullish brick is formed. A brick will not

be formed if the price is even one tick below 105. Accordingly, if the price is

at 104, the Renko chart will not plot anything. Thus, the defined brick value

also determines the frequency of bricks and the noise that we want to

eliminate.

Renko charts can be drawn by using different brick values but the principle

remains the same. Later, we will discuss how best to decide what the

appropriate brick value should be. Before that, notice in the example of

Figure 1.7 that because it is a 5 brick value chart, the next bearish brick will

be plotted only if the price falls to at least 100, and a bullish brick will be

plotted only if the price goes up to at least 115.

It is important to grasp that the next bullish brick will be plotted if the price

closes either at, or above, 115. It is not necessary that the price must break

out, or close, above 115. Similarly, for a bearish brick to be plotted at 105,

the price has to close either at, or below, 105.

Thus, the rules for forming the bullish or bearish bricks are clear and

objective. Objectivity and noiselessness are the two most important

advantages of Renko charts, besides their visual appeal.


Exercise

Let’s do an exercise in constructing a Renko chart to test our comfort with

the basics.

Table 1.1 is a price table which we will use to plot a Renko chart with a brick

value of 10. I recommend readers to try and make a Renko chart on their own

using the price data in Table 1.1.


The method I adopt to plot a Renko chart is that I define the scale as per the

brick value chosen to keep it a round number for better readability. If we

choose the brick value as 10, the scale used will be 100, 110, 120, and so on.

Let’s begin with the first price. We cannot plot the first price simply because

we don’t know whether we need to start with a bullish brick or a bearish

brick. Because it is a 10 brick value chart, if the price goes up by 10 points

we’ll begin with a bullish brick and if it declines by 10 points, we’ll start with

a bearish brick. A Renko chart cannot be plotted with just one price; we’ll

have to wait for another.

As the second price is 110.20, which is higher than the first price, we begin

with a bullish brick and draw it as shown in Figure 1.8.





The next brick will be plotted if the price either goes to 120, or above, or falls
to 90 or below, the low price of the previous brick. Any price that occurs in
between these two is insignificant and is considered as noise for this chosen
brick value.
The third and fourth prices, 117.05 and 110.50 respectively (see Table 1.3),
fall between these two reference levels and thus don’t warrant plotting. The
fifth price in Table 1.3 has gone above 120, hence a bullish brick needs to be
plotted. The sixth and the seventh prices are ignored as they do not warrant
plotting either bullish or bearish bricks. The eighth price falls below the
requirement of the bearish brick price level and hence a bearish brick is
plotted (see Figure 1.9).



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