Rainbow Charts Analysis & Rainbow Charts Trading Signals

Developed by Mel Widner

This is a 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 & so on. This forms a rainbow shape of the market trend, each moving average is applied with a different colors so as to look as a rainbow.

XAUUSD Analysis & Generating Trading Signals

Bullish Trend/ Upwards Gold Trend

When the trend in the market is Upwards/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 trend is a bearish downwards then the rainbow charts will be heading downward, the major smoothed line (Violet) will be at the bottom & the least smoothed line (Red) will be at the top.

XAUUSD 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 trend continuation signal. The indicator lines will also continue to expand its width; this is also another trend continuation signal.

XAUUSD Trend Reversal Signal

When trading price starts moving towards the rainbow charts then this is seen as a trend reversal. The width of the indicator lines also contracts signifying a trend reversal. The reversal Signal is confirmed when price penetrates through all the rainbow charts and the direction of the rainbow charts also reverses in their respective direction.