Rainbow Charts Technical Analysis & Rainbow Charts MT5 Indicator
Developed by Mel Widner
This is a forex 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 currency trend, each moving average is applied with a different colors so as to look as a rainbow.
FX Technical Analysis & How to Generate Signals
Bullish Forex Trading Trend/ Upwards FX Trading Trend
When the forex trend in the forex 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 Forex Trading Trend
When the Forex 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.
Forex Trend Continuation Signal
As the forex trend continues in one direction up or down, the rainbow charts follow the forex price closely. The more the forex price moves away from the rainbow chart the more the forex trend is likely to continue, this is considered as a forex trend continuation signal. The indicator lines will also continue to expand its width; this is also another forex trend continuation signal.
Forex Trading Trend Reversal Signal
When forex price starts moving towards the rainbow charts then this is seen as a forex trend reversal signal. The width of the indicator lines also contracts signifying a forex 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.
