Renko Charts Explained With a Real Bank Nifty Example

What A Renko Chart Actually Plots

A Renko chart replaces candles with equal sized bricks (boxes). The chart adds a brick only when price has moved a fixed distance, called the box size, from the close of the previous brick. The name comes from the Japanese word renga, meaning brick. Because the rule is about distance, not the clock, Renko throws away the time axis. Five fast bricks can print in two minutes during a news spike, and then no brick prints for the next hour while price chops inside the box.

Each brick is the same height. A green (up) brick means price rose by one box size. A red (down) brick means price fell by one box size. Bricks are drawn corner to corner on a diagonal, never side by side at the same level. This is the single most important thing to understand, because it is exactly why Renko looks so clean. All the small back and forth that clutters a 5 minute candle chart simply never gets drawn, since it never travels a full box.

Two settings define a Renko chart. First, the box size, set either in absolute points (for example 100 points on Bank Nifty) or by ATR (Average True Range, a volatility measure). Second, the price source, usually the close. A close based Renko only confirms a brick when the candle for that period closes beyond the box, so a brick that looks formed mid candle can still vanish if price pulls back before the close. Knowing this prevents you acting on a brick that has not actually printed yet.

A Real Bank Nifty Renko Example, Brick By Brick

Let us make this concrete with a fully worked Bank Nifty walkthrough. These price levels are illustrative but realistic for a normal trending session. We choose a box size of 100 points, which is a sensible starting point for Bank Nifty given its typical daily range of several hundred points. Assume the last printed brick is green and closed at 48,000. That close of 48,000 is now our reference. The next brick up needs a close at or above 48,100. The next brick down, because of the 2 box reversal rule, needs a close at or below 47,800.

Now watch the prices arrive through the session. Each row below shows the spot Bank Nifty level reached and what the Renko engine does with it. Remember the rule: continuing the trend needs only 1 box (100 points), but reversing the colour needs 2 boxes (200 points) measured from the last brick close.

Trace the logic carefully because it is the heart of Renko. At 48,105 the first green brick prints with a base at 48,000 and a top at 48,100. At 48,140 nothing happens, because price has not travelled a full new box of 100 points from the 48,100 top. This is the noise filter in action. The 48,210 and 48,330 prints add two more green bricks, building a clean uptrend of three green bricks from 48,000 to 48,300. The pullback to 48,250 prints nothing, since a colour flip from the 48,300 brick needs price down at 48,100, a 200 point drop. Only when price reaches 48,090, a 210 point fall, does Renko flip to red and, because the move covered 2 full boxes, it prints two red bricks at once, dropping the chart from 48,300 back to 48,100.

Turning That Brick Into A Rupee Result

A Renko brick is only a signal. You cannot buy a brick, you buy the underlying. Suppose the third green brick (the close above 48,300) is your entry trigger and you express the view through one lot of Bank Nifty monthly options. Bank Nifty lot size is 30, so one option point equals Rs 15 of profit or loss per lot. You buy 1 lot of a near the money weekly call at a premium of Rs 250. That is an outlay of 250 times 15, which equals Rs 3,750 plus costs.

Say the uptrend continues and Renko prints two more green bricks to 48,500 before the red reversal. Your call, bought when spot was near 48,310, now trades around Rs 380 as spot sits near 48,500. You exit at the first red brick. Gross gain is (380 minus 250) times 15, which is 130 times 15, equal to Rs 1,950 per lot. Now subtract the real costs. A discount broker charges a flat Rs 20 per order, so Rs 40 for buy and sell. STT on options is charged at 0.1 percent of the sell side premium value (on the premium, not the contract notional), which on a sell premium of 380 times 15 equals 5,700, giving STT of about Rs 6. Exchange transaction charges, SEBI fee, stamp duty and 18 percent GST on (brokerage plus transaction charges) typically add another Rs 30 to 50 on a trade this size. Round total costs to roughly Rs 90 to 100.

Net result is approximately 1,950 minus 100, which is about Rs 1,850 per lot on this illustrative trade. Because this is an F and O trade, that profit is business income in India and is taxed at your income slab rate, not at the 20 percent STCG or 12.5 percent LTCG rates that apply to delivery equity. There is no Rs 1.25 lakh LTCG exemption on options. If you traded 5 lots the gross scales to about Rs 9,750 and costs rise proportionally, but the brick logic and the reversal lag are identical. The point of the example is not the rupee figure, it is that the box size you choose directly sets how late your entry and exit are, and therefore how much of the move you actually capture.

Choosing The Box Size For Indian Instruments

Box size is the one decision that changes everything. Too small and you drown in red and green flips during a range, too large and the trend is half over before the first brick confirms. There is no universal best value, but there are sensible starting ranges anchored to how much each Indian instrument typically moves in a day. Always re check current contract specs and lot sizes on the NSE site, since the exchange revises them periodically.

A strong alternative to a fixed box is an ATR based box, where the box size auto adjusts to recent volatility. In a calm market the boxes shrink and Renko stays responsive, and in a violent market they widen so you are not whipsawed by every spike. The cost is that an ATR Renko repaints, meaning past bricks can be recalculated as ATR changes, which makes backtests look better than live results. If you backtest an ATR Renko strategy, be deeply sceptical of the equity curve and test it forward on paper before risking capital.

• For Bank Nifty intraday swing trades, a 50 point box is a common middle ground, responsive but not noisy.
• For Bank Nifty positional or multi day views, 100 to 150 points keeps you in the larger trend and out of the chop.
• For individual NSE stocks, prefer a percentage or ATR box so the same setting works on a Rs 200 stock and a Rs 3,000 stock.
• Never copy a box size from a US index video. Bank Nifty point values and volatility are nothing like the S and P 500.

How To Read Trend, Entry And Exit On Renko

The visual grammar of Renko is deliberately simple. A run of consecutive green bricks is an uptrend, a run of red bricks is a downtrend. The most watched signal is the colour flip: the first red brick after a green run, or the first green brick after a red run. Many traders enter on the close that confirms the flipping brick and place a stop on the far side of the previous one or two bricks. With a 100 point Bank Nifty box, that is a stop of roughly 100 to 200 points, which you must size your position against.

A second, more conservative pattern is to wait for confirmation, two bricks of the new colour rather than one. In our earlier example, the two red bricks that printed together at the 48,090 level would qualify as a confirmed reversal in one stroke. Confirmation cuts false signals in a range but gives back even more of the move, so it suits positional traders more than scalpers. Whichever you choose, define it before the session and apply it the same way every time, because Renko rewards mechanical discipline and punishes second guessing.

• Identify the current brick colour and the run length, this is your trend.
• Mark the price that would flip the colour, this is your decision level (200 points away with a 100 box).
• Enter on the confirmed flipping brick close, not on an unconfirmed mid candle brick.
• Place the stop beyond the prior brick or two, then size the position so that stop is an amount you can lose.
• Trail the stop one brick behind price as the trend extends, and exit on the opposite colour flip.

Renko Versus Candlestick Charts

Renko and candles answer different questions. Candles preserve time, open, high, low, close and let you read volume, gaps and exact wicks. Renko discards all of that to surface the trend. Neither is better in the abstract. A scalper reading order flow needs candles or footprint charts. A swing trader trying to sit through Bank Nifty chop without panic selling on every 30 point dip is often calmer on Renko. The table below lays out the trade off so you can match the tool to your job.

Combining Renko With Other Indicators

Renko works best as a trend filter, not a standalone system. A clean way to use it on Bank Nifty is to take only the trade direction Renko shows and then time the entry with a faster tool on a normal candle chart. For example, trade longs only while the Renko trend is green, and use a short period moving average crossover or an RSI (Relative Strength Index) coming up through 50 on the 5 minute candles to time the actual option buy. This stops you from fighting the larger trend, which is where most intraday accounts bleed.

Be careful not to stack indicators that all measure the same thing. Renko, a long moving average and a slow stochastic are all just trend in three costumes, and agreeing with yourself is not confirmation. Pair Renko (trend) with one momentum or volatility tool (timing), and stop there. Also remember that an RSI computed on Renko bricks behaves very differently from an RSI on time candles, because the brick spacing is irregular in time. If you read RSI alongside Renko, read it on the candle chart, not on the brick chart, to avoid a misleading value.

• Use Renko colour as a directional filter: longs only on green, shorts only on red.
• Time the entry with a momentum tool on candles, such as RSI crossing 50 or a fast EMA crossover.
• Avoid stacking three trend indicators, they will all agree and give false confidence.
• Keep RSI and similar oscillators on the time based candle chart, not on the irregular Renko bricks.

Where Renko Fails: Ranges And Late Signals

Renko has two honest weaknesses and you must respect both. The first is the sideways market. When Bank Nifty oscillates in a 150 point band with a 100 point box, you can get a green brick, then a red reversal, then a green reversal again, each costing you a stop. Renko looks deceptively clean even while it is chewing through your capital in a range, because the chart hides the time you spent stuck. If you cannot see a clear staircase of same colour bricks, the instrument is probably ranging and Renko is the wrong tool for that session.

The second weakness is the built in lag we measured in the worked example. A 2 box reversal on a 100 point Bank Nifty box means you forfeit up to 200 points at every turn, 100 on the way in and the rest because the brick confirms only on close. On a sharp gap down at the open, Renko may print several red bricks at once well below where price already is, giving you a fill far from the brick boundary. Renko is a tool for capturing the middle of a trend, never the exact top or bottom. Size your trades and set your expectations around that fact, and never trade Renko signals without a hard stop loss.

Taxes And Costs On Renko Based Bank Nifty Trades

The chart style does not change the tax treatment, the instrument does. When you act on a Renko signal by trading Bank Nifty futures or options, the profit or loss is F and O income, treated as non speculative business income in India. It is added to your total income and taxed at your applicable slab rate, with no separate concessional rate. The 20 percent short term and 12.5 percent long term capital gains rates, and the Rs 1.25 lakh LTCG exemption, apply to delivery based equity, not to index options or futures. If you also trade Renko on delivery stocks, then those equity holdings do fall under STCG or LTCG depending on holding period.

On the cost side, every Renko triggered options trade carries STT (0.1 percent on the sell side option premium), exchange transaction charges, the SEBI turnover fee, stamp duty on the buy side, 18 percent GST on brokerage plus transaction charges, and your broker brokerage. Because Renko encourages you to wait for confirmed bricks, it tends to produce fewer trades than a 1 minute candle scalp, which is a genuine cost advantage. Keep a trade log, total these charges monthly, and reconcile them against your broker contract notes, since the rupee edge from a good box size can be quietly eaten by overtrading and slippage near weekly expiry.

Sources And Further Reading

For authoritative data and contract specifications, refer to Zerodha Varsity, Investopedia, NSE India and SEBI. Always confirm current lot sizes, STT rates and tax rules on the official source before you trade, since these change. You can also size your trades with our position size calculator and pair Renko with the RSI indicator for timing.

Sources and Further Reading

For authoritative data and further reading on this topic, refer to Zerodha Varsity, Investopedia, NSE India and NSE Indices (Nifty Indices). Always confirm current rules, rates and contract specifications on the official source before you trade.