HIGH - LOW BRICK VALUE


Thus far we have plotted Renko charts using closing prices. As observed

earlier, Renko charts can’t be plotted with only one price.

A. W. Cohen made a remarkable advance in the field of Point & Figure

charts when he devised the high-low method of plotting such charts in his

brilliant work in the late 1950s. The same method can be used for plotting

Renko charts as well. Instead of the closing price, the high and low prices of

a particular period can be utilised for plotting a Renko chart. To plot Renko

charts with this method, either the high price or the low price of a period

needs to be considered. The rules are as follows:

■ If the price forms a new high and qualifies for the next bullish brick, the low price is to be ignored and a bullish brick is to be plotted connecting

the high prices.

■ If after forming a bullish brick, the price doesn’t form a new high price

that qualifies for a bullish brick, then check if the low price of that period

fulfils the criteria for the formation of a bearish brick. If yes, plot a

bearish brick. If no, move on.

■ If the price forms a new low price which qualifies for a bearish brick,

first consider the low price of the next period to check whether another

bearish brick can be formed. If yes, plot a bearish brick. If not, check the

high price of the period to ascertain whether the reversal criteria is

fulfilled. If so, plot a bullish brick. If not, move on.

Hence, with this method we first consider the high price if the last brick was

bullish — and the low price first if the last brick was bearish.

Table 1.6 and Figure 1.13 provide brick-wise explanation of the construction

of a high-low Renko chart.

Those who are familiar with the point & figure (P&F) charts will realise that

Renko charts are similar to P&F charts in more ways than one. The key

difference between Renko and P&F charts is that we don’t have to define the

reversal method or value in a Renko chart. We only need to define a brick

value to plot the Renko chart. It is possible to introduce reversals also to the

Renko charts, but let’s not complicate it just now.


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