One of the drawbacks of technical analysis indicators is the need to visually monitor the formation of a set of signals. As soon as all signals match, a position is opened. That’s just on the chart to follow at the same time for several lines and try not to miss the moment is not so simple. Visual overstrain, and hence emotional fatigue – the result of constant monitoring of the schedule.
In the Rainbow indicator, this problem is partially solved. While on the other hand, those who will try to deeply understand its essence, we are not jealous. It is considered one of the most difficult in Forex, but at the same time it is ideal for several tasks simultaneously. It contains several dozen exponential sliding (because you can still find its version called e-Rainbow). They form several color areas that can be used to form both scalping and long-term strategies.
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One of the advantages of the Rainbow indicator is visual zone formation from the color point of view. Therefore, the selection of colors is important so that the areas do not merge with the color tint of the terminal and the superimposed indicators. In the basic version, the settings for color areas and periods of movings are as follows:
- Yellow area (Yellow). Formed by sliding with periods: 2 – 15;
- Blue area (Blue). Formed sliding with periods: 17, 19, 21, 23, etc. up to 41 (even periods are skipped);
- Green area (Green). Formed sliding with periods: 44, 47, 50, 53, etc. to 74 (the distance between periods is 3);
- Red area (Red). Formed sliding with periods: 78, 82, 86, 90, etc. to 122. the distance between the periods is 4);
- Pink area (Pink). It is formed by sliding with periods: 125, 130, 135, 140, etc. to 200 (the distance between periods is 5).
Essentially, the color of the area is formed by the colors of the exponential moving colors themselves. Yellow movings are shown on short-term trends that will be interesting for those who prefer scalping. Blue area for short-term trends will be useful for intraday strategies, green for medium-term strategies, red for long-term strategies. The pink area is for those who are considering investing options (i.e., investing in assets for several years).
The Rainbow indicator is still an auxiliary analytical tool, to which it is recommended to add something else. For example, oscillators or any trend indicator. You can use the candlestick analysis – work on the intersections of the movings of a certain area with the tops of the candles.
The second option is to trade directly on the indicator. The most accurate and powerful signal – all sliding all areas are directed in one direction. If the order of colors from top to bottom is the same as above, this is a buy signal, if the sliding ones are arranged in the reverse order – for sale. Interlacing colored sliders can mean the formation of a flat.
The Rainbow indicator is not so much innovative as a combination. The strategy based on moving has been known for a long time and there are various variations of it: at the breakdown level or at the formation of a strong trend. But this option of using gliders seems to be the most convenient. We hope you enjoy it. Share your opinion in the comments!