Rainbow Charts Commodity Trading Technical Analysis & Rainbow Charts Trading Signals

Developed by Mel Widner

This is a commodity trend following indicator, similar to the moving averages - it's drawn using a 2 period simple moving average. Moving average is then smoothed to create a total of ten moving averages. First moving average is the basis, then the next moving average is calculated using the first one, the third is then calculated using the second one and so on. This forms a rainbow shape of the commodity trend, each moving average is applied with a different colors so as to look as a rainbow.

Commodity Trading Analysis & Generating Trading Signals

Bullish Commodity Trading Trend/ Upwards Commodities Trading Trend

When the commodity trend in the commodities market is Upward/bullish trend, then the rainbow will be moving upwards, the least smoothed line will be at the top of the indicator, this is the red line and the major smoothed line will be at the bottom of the indicator, this is the violet line.

Bearish Market/Downward Commodity Trading Trend

When the commodity trend is a bearish downward then the rainbow charts will be heading downward, the major smoothed line (Violet) will be at the bottom and the least smoothed line (Red) will be at the top.

Commodity Trading Trend Continuation Signal

As the commodity trend continues in one direction up or down, the rainbow charts follow the commodity price closely. The more the commodity price moves away from the rainbow chart the more the commodity trend is likely to continue, this is considered as a commodity trend continuation signal. The indicator lines will also continue to expand its width; this is also another commodity trend continuation signal.

Commodity Trading Trend Reversal Signal

When commodity price starts moving towards the rainbow charts then this is seen as a commodity trend reversal signal. The width of the indicator lines also contracts signifying a commodity trend reversal signal. The reversal Signal is confirmed when the price penetrates through all the rainbow charts and the direction of the rainbow charts also reverses in their respective direction.