INTRODUCTION TO RENKO CHARTS


Technical analysis can broadly be defined as the study of historical price

action of a financial instrument, commodity, currency, etc. that helps in

arriving at a reasonable conclusion about its prevailing demand and supply

equation.

The following are the basic tenets of technical analysis according to the

classic work, Technical Analysis of Stock Trends by Robert D. Edwards and

John Magee:*

1. Stock** prices move in trends, and a trend is deemed to continue until it

gets reversed.

2. Stock prices are determined by the interaction of demand and supply, and

the shifts in demand and supply cause reversals in trends.

3. The price discounts everything. Shifts in demand and supply can be

detected in charts.

4. Price history and chart patterns tend to repeat themselves.

Popular Charting Methods

There are many ways to capture, or chart, the historical price movement of a

financial instrument. The popular charting methods include line chart, bar

chart and candlestick chart. Figure 1.1 explains their construction.

Line charts are drawn by connecting closing prices of the chosen time

interval. In bar charts, a bar is bullish when its closing price is higher than the

earlier period’s bar; it is bearish when the closing price is lower than the

earlier period’s bar. In candlestick charts, a candle is bullish when the close

of a period is higher than its open, else it is bearish.



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