Индикатор Raindow Форекс

Definition

A rainbow indicator is a technical indicator that draws ten simple moving average lines of different colors like a rainbow to determine the trend direction.

It is a beginner-friendly indicator, making it easy for beginner traders to determine the direction of market trends. Finding bullish and bearish trends is an essential first step in technical analysis. So if you’re failing to identify the trend correctly, then you won’t be able to do a high-probability technical analysis of any currency pairs. But the Rainbow indicator makes it simple and super easy to find the bullish and bearish trends.

I will explain complete guidance about the rainbow indicator, so read the article thoroughly without missing any step.

How does the rainbow indicator work?

There are no complex formulas behind the rainbow indicator, but it consists of 10 moving averages line. Each simple moving average is the SMA of the previous SMA.

Confusing?? Let me explain to you in detail.

• The first simple moving average uses the two period to draw the line. You can also change the default period.
• The second simple moving average uses the two period of the first simple moving average.
• The third SMA uses the two periods of the second SMA line.
• It continues until the 10^th SMA line uses the two periods of the 9^th SMA line.

All the SMA lines consist of different colors and become a rainbow-like shape on the candlestick chart.

Formula

The rainbow indicator only uses the Formula of the simple moving average, that is:

SMA Formula = Sum of close prices of N period candlesticks/number of periods

You can also manually calculate the SMA value using the above Formula. This Formula gives rise to a dynamic line on the price chart, which we call the moving average line.

Calculations

To make it clearer and easier to understand, I will explain the calculations of this indicator with an example if the closing price of the previous and current candlestick of the EURUSD currency pair is and Then the moving average price on the current candlestick will be:

SMA = +/2

This was the Formula for SMA 1.

To calculate the SMA 2 (simple moving average line 2)

SMA 2 = SMA 1 at current candlestick + SMA 1 of previous candlestick/2

In the same way, we will calculate the other eight simple moving average lines, which will make a rainbow indicator.

Importance

The rainbow indicator’s ten moving average lines act as dynamic support and resistance. Price always bounces from the support and resistance. In the same way, these moving average lines work.

When the rainbow indicator plots the lines below the candlesticks, it means these lines will act as support. Price will bounce in the bullish direction from the simple moving average lines.

If the rainbow indicator plots SMA lines above the candlesticks, they will act as resistance. Price will bounce from the resistance in the bearish direction.

How to use the rainbow indicator in trading?

The working method of the rainbow indicator is similar to a simple moving average line on the candlestick chart.

When the price crosses the SMA lines from the bottom, then a bullish trend starts. On the other hand, when the price crosses the SMA lines from the top, a bearish trend starts.

Open a sell trade

• Add the rainbow indicator to the chart, then check that price is moving above the rainbow SMA lines.
• Then wait for the price to close below the 10^th SMA line and open a sell trade.
• Place stop loss above the recent swing high and take profit when the price closes above the 10^th SMA line.

Open a buy trade

• If the price is moving below the SMA lines and after the breakout, the candlestick closes above the SMA lines, then open a buy trade
• Place stop-loss below the recent swing slow
• Close the buy trade when a candlestick closes below the rainbow indicator.

However, the best use of this indicator is to take profit levels. For example, if you open a sell trade in a currency pair, break even your trade and wait until the price completely crossover the rainbow indicator in the bullish direction. In this way, you can get ultra-high-risk reward trades. It will also keep you away from price consolidations.

The bottom line

I highly recommend that beginners and intermediate traders use the rainbow indicator in their trading strategies. You should not wholly rely on the rainbow indicator but use it as a confluence with other trading strategies.

When you add more than one technical tool to make a trading strategy, the winning probability of that strategy increases—after then, following the proper risk management and overcoming your trading psychology using a simple system will make you a profitable trader.

Do you want to get success in Trading?

Here's the Roadmap:

Learn supply and demand from the cheat sheet here

Get access the Supply & Demand Indicator here

Understand the fair value gap here

Use the set and forget strategy here

Follow the risk management plan here

The Rainbow forex indicator is an mt4 technical indicator with seven moving averages(ma) to make a rainbow of forex support or resistance. This rainbow act as a chart support or resistance zone. 

Moving averages determine the trend&#;s direction and find the dynamic support or resistance levels. Price respects the moving averages. 

How does the rainbow mt4 indicator work?

The moving averages(MA) are used to find the primary key levels on the mt4 chart. But sometimes, they need help to give exact chart reversal points. That&#;s why there is a mix of seven moving averages in rainbow forex indicators that are all used to see key reversal levels on the chart. 

These seven moving averages(MA) make a wide zone. This expansive zone act as a chart support or resistance level. 

Price bounces from the forex rainbow of moving averages(MA). After the breakout of the rainbow, a chart price trend reversal occurs. The price trend changes. 

• If the price breaks the forex rainbow of moving averages with a big bullish chart candlestick breaching through all the moving averages, the chart price trend changes from bearish to bullish.
• Conversely, if the price breaks the forex rainbow with a big bearish chart candlestick breaching through all the moving averages, the price trend changes from bullish into bearish.

Also, Learn about the FREE Gold Trading EA Download

Types of moving averages used in rainbow forex indicator

Seven moving averages with different periods are used in the rainbow indicator. You can also change the period according to the requirements. But we recommend you use the moving averages from low to high in the following periods.

• 9 Period
• 16 Period
• 21 Period
• 35 Period
• 41 Period
• 55 Period
• 61 Period

See also Forex Triple Hit Indicator For FREE Download

These are recommended moving averages to make a rainbow of moving averages. You can assign different colors depending on the strength of each moving average. 

Rainbow indicator signals in mt4

Buy signal

When a big bullish candlestick breaches through the seven moving averages and closes above the MAs, it shows a buy signal. It would help if you stayed in the long direction until a price breaks the 61 Period moving average in the opposite direction. 

Sell signal

When a significant bearish candlestick breaches through the seven moving averages and closes below, it shows a sell signal. Keep holding a sell position until a breakout of 61 periods moving average does not happen in the opposite direction. 

	No Minimum Deposit ECN Acount No Commission
	Min Deposit of 20$ Allow USA Traders Levergae up to

Download a Collection of Indicators, Courses, and EA for FREE

Conclusion

The Rainbow in mt4 is the best and most simplistic indicator for newbie traders. It can also generate profits in the forex market if traded with other confluences like chart patterns or trading indicators. 

Use candlestick patterns to get high accuracy and winning signals with a rainbow indicator.

Rainbow Forex Indicator MT4 Free Download

When to open a position?

A position is opened when the market price pulls back inside the rainbow, and crosses below a certain number of the 22 EMAs. The trader can select the specific EMA below which the market price must drop. Given there are 22 EMAs, 11 is half-way through the rainbow and 22 is the bottom of the rainbow. The deeper the trader allows the market price to pull back into the rainbow, the stronger the potential return to trend will be, but the higher the risk of a real trend reversal.

In this example the market is in a bullish trend. The trader selected the 11th EMA as the pullback signal level. The EMA selected is indicated by a black line. When the market price crosses below the 11th EMA a buy signal occurred. The buy signal is by the black candle and the vertical green bar. The market price returns to trend after the signal.

Free trading platform demo

In this example the market is in a bearish trend. The trader is looking for pullbacks, which may provide a short sell opportunity. The trader selected the 17th EMA as the pullback signal level. When the market price crossed above the 17th EMA (black line) a short sell signal was generated. The signal is indicated by the black candle and the vertical red bar. It was a clear pullback with the market returning to trend immediately after the signal.

Free trading platform demo

But what in a sideways market when there is no clear trend? How can the trader make sure there is a strong return to the trend? The Rainbow strategy contains a very intelligent signals filter: the slope of the fastest EMA. This is the 9-period EMA in red.

The trader can indicate in percent the slope he wants the 9-period EMA to have after the signal i.e. a steep slope indicates a strong, fast return to trend.

This example shows several occasions when the market price crossed below the selected EMA. Because the fastest EMA (top red line) did not have an upward slope – it was actually going down – after the cross, the platform did not give buy signals. In this example the required slope was set to 0,01%.

Free trading platform demo

Developed by Mel Widner and originally described in the July issue of Technical Analysis of Stocks and Commodities magazine, the Rainbow Oscillator, like the Rainbow Charts, is a trend-following indicator. It is derived from a consensus of the Rainbow Charts trends.

Similar to the Rainbow Charts, the core of the Rainbow Oscillator is a 2-period Simple Moving Average, to which recursive smoothing is applied. This way nine other moving averages are created, with each new one being based on the previous moving average. A total of ten moving averages is created, which appear in the form of a rainbow, when plotted on a chart. The oscillator is based on the following calculations:

r1: = Mov (C,2,S);
r2: = Mov (r1,2,S);
r3: = Mov (r2,2,S);
r4: = Mov (r3,2,S);
r5: = Mov (r4,2,S);
r6: = Mov (r5,2,S);
r7: = Mov (r6,2,S);
r8: = Mov (r7,2,S);
r9: = Mov (r8,2,S);
r = Mov (r9,2,S);

It determines the highest high and the lowest low of these moving averages. The Rainbow Charts and the Rainbow Oscillator are basically one and the same indicator, with the only difference between them being the way they are visualized.

As the Rainbow width becomes larger, this indicates that the present trend may be continuing, while if the oscillator shows a reading above 80, the market may begin showing signs of instability. The stage is set for a reversal.

If the price tends to approach the Rainbow and the oscillator line tends to be flatter, this suggests that the market tends to show signs of stability. The oscillator bandwidth will narrow. In case, however, the oscillator reading falls below 20, this implies that the stage is again set for a market reversal. The market is stable, when the oscillator readings are between 20 and

Chart Source: VT Trader