Rainbow Charts Technical Analysis & Rainbow Charts Signals

Created by Mel Widner

This is a price trend following indicator, similar to the moving averages MAs - it is drawn using a two period simple moving average MA. The MA is then smoothed to create a total of ten MAs. First moving average MA is the basis, then the next moving average MA 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 trend, each moving average is applied with a different colours so as to look as a rainbow.

Technical Analysis and Generating Signals

Bullish Trend/ Upward Trend

When the market trend in the market is Upwards/bullish trend, then the rainbow will be heading upwards, the least smoothed line will be at the top of the technical indicator, this is the red line & the major smoothed line will be at the bottom of the technical indicator, this is the violet line.

Bearish Market/Downward XAUUSD Trend

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

Trend Continuation Signal

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

Trend Reversal Signal

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

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