Rainbow Charts Analysis & Rainbow Charts Trading Signals

Developed by Mel Widner

This is a market trend following trading indicator, similar to the moving averages MAs - it's drawn using a two period simple moving average MA. The MA, Moving Average is then smoothed out to make a total of 10 moving averages MAs. 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 & so on. This forms a rainbow shape of the market trend, each moving average MA is applied with a different colors so that to look as a rainbow.

Rainbow Charts Indicator - XAUUSD Rainbow Chart Indicator - MT4 Rainbow Charts

XAU/USD Analysis & Generating Trade Signals

Bullish Trend/ Upwards Gold Trend

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

Bearish Market/Downwards Trend

When the 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.

Rainbow Charts Trading Indicator Analysis - Rainbow Charts Indicator - Gold Rainbow Chart Indicator

XAU/USD Trend Continuation Signal

As the market trend continues in one direction up or down, 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 market trend continuation trading signal. The indicator lines will also continue to expand its width; this is also another trend continuation trading signal.

XAU/USD Trend Reversal Signal

When price begins moving toward the rainbow charts then this is seen as a trend reversal. The width of the technical indicator lines also lots signifying a market trend reversal. The reversal Signal is confirmed when price penetrates through all the rainbow charts and the direction of the rainbow charts indicator also reverses in their respective direction.

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