Rainbow Charts Stock Indices Technical Analysis and Rainbow Charts Stock Indices Signals
Developed by Mel Widner
This is a stock indices trend following indicator, similar to the moving averages - it is drawn using a 2 period simple moving average. The moving average is then smoothed to create a total of ten moving averages. The 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 stock indices trend, each moving average is applied with a different colors so as to look as a rainbow.
Stock Indices Technical Analysis and Generating Stock Indices Signals
Bullish Trend/ Upward Trend
When the stock indices trend in the stock index trading 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 Trend
When the stock indices trend is a bearish downward then the rainbow charts will be moving downwards, the major smoothed line (Violet) will be at the bottom and the least smoothed line (Red) will be at the top.
Stock Indices Trading Trend Continuation Signal
As the stock indices trend continues in one direction up or down, the rainbow charts follow the stock index price closely. The more the stock index price moves away from the rainbow chart the more the stock indices trend is likely to continue, this is considered as a stock indices trend continuation signal. The indicator lines will also continue to expand its width; this is also another stock indices trend continuation signal.
Stock Indices Trading Trend Reversal Stock Indices Signal
When stock index price starts moving towards the rainbow charts then this is seen as a stock indices trend reversal stock indices signal. The width of the indicator lines also contracts signifying a stock indices trend reversal stock indices signal. The reversal Signal is confirmed when the stock index price penetrates through all the rainbow charts and the direction of the rainbow charts also reverses in their respective direction.