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.
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