Understanding the Basic Difference Between Range Bars and Renko Bars

This tutorial explores the basic difference between range bars and renko bars. Both Range bars and Renko bars are timeless charts . Both range bars and renko bars use only price into consideration while plotting and keeps time and volume element outside.

Range bar charts are invented around 1990 by the brazillian trader and a broker Vicente Nicolellis. Whereas the Renko Bars are invented by the japanese. Renko Charts are often similar to Point and Figure charts and Renko charts looks like bricks or blocks. 

How Range Bar Charts are Plotted?

The three basic rules of Range Bars are:

1. Each range bar must have a high/low range that equals the specified range
2. Each range bar must open outside the high/low range of the previous bar, and
3. Each range bar must close at either its high or its low.

Does range bar charts reduce noise? To some extent yes. It is a different form of data representation. However in a slow-moving markets range bar charts forms less number of candles and in a fast moving markets range bar charts for more number of candles.

Below chart is the Nifty Futures 10 point range bar charts. i.e each and every candle has a fixed high-low range of 10 points.  A new bar will be formed if the fixed high-low range is broken either on the upper side or on the downside.

How to set Range Bar Size :

One need to set range bar size based upon what kind of trader they are. If they are scalper or intraday trader then smaller range bar size is preferred. However if someone is a positional trader then bigger range bar size is preferred based on their holding period.

When comes to Nifty Futures range bar size of 10 or 15 range is preferred. However, for positional trader anywhere between 25 to 50 is preferred based on the risky nature of the trader. If you are  a trend follower then range bars provides better results compared to time based charts.

How Renko Bars are Plotted?

Renko charts help traders to focus on the trend visually. In Renko bars, every bar is of the same length (including reversals, but price must travel two times the Renko bar in the opposite direction). 

If we choose a size of 10points  for the Nifty Futures, then for every 10 pts move in price, a new Renko brick is formed, without any consideration about the time. So, if the Nifty Futures moves only 9 points in a day, a new brick will not be formed. This approach helps in showing price trends very clearly. 

If Nifty Futures is at 10700 and moves to 10710. This marks the first bullish Renko box. A new Renko box is opened at 10710. Now Nifty Futures falls to 10695 and then rises to close at 10705. This marks a second bullish Renko box. Nifty then rises to 10720 and falls to 10710, we are still at the second Renko box (because for a reversal, we need 2 times the box size, which is 20 points in this example). Nifty futures then rises to 10725 and then falls to 10705; this is when we get a bearish Renko reversal box.

so clearly different trading instruments requires different brick size depends upon the price, volatility & traders holding period one need to fix the renko brick size

Traders use Renko bar charts to identify trends, Key support and resistance levels, to identify breakout trades and failed breakouts. Renko by itself is a trading strategy whereas for range bars one need to plot indicators or apply trading strategies on top of range bars.

What is the preferred charting software for Renko?

Ninjatrader 7 or Ninjatrader 8 is the preferred charting software for Renko and Range bars. 

Traditionally traders use either Fixed Renko Bricks or ATR based Renko models but Ninjatrader supports wide varieties of renko models like hybrid renko, better renko, unirenko and many other renko types.  And when there is a gap formation lot many charting tool plots renko blocks for the gap zones as well. However that issue is well handled in Ninjatrader.