Rainbow Charts Analysis and Rainbow Charts Trading Signals

Created and Developed by Mel Widner

This tool follows market trends, like moving averages, and is created using a simple moving average over two periods. The Moving Average (MA) is then made smoother to create a total of ten moving averages. The first moving average is the starting point, and then each following moving average is calculated using the previous one. This creates a rainbow shape showing the market trend, with each moving average having a different color to look like a rainbow.

Rainbow Charts Indicator - Rainbow Charts Trading Indicator Analysis

Index Analysis & How to Generate Trading Signals

Bullish Trend/ Upwards Trend

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

Bearish Market/Downward Trend

When the trend is going down, the rainbow charts will also be moving down, with the most smoothed line (Violet) at the bottom and the least smoothed line (Red) at the top.

Rainbow charts show bullish or bearish trends clearly. Traders use them for market analysis.

Trend Continuation Signal

As prices push up or down, rainbow charts track them tight. When prices drift far from the chart, the trend keeps going. That's a signal for more trend trades. Lines also spread wider, another sign to continue.

Trend Reversal Signal

When stock price starts moving toward the rainbow charts then this is seen as a trend reversal signal. The width of the indicator lines also contracts signifying a market trend reversal signal. The reversal Signal is confirmed when the price penetrates through all the rainbow charts & the direction of the rainbow charts also reverses in the respective direction.

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