The MetaTrader trading platform is well-known automated trading software used by most traders for investing in the currency market. It not only facilitates automatic bid placements but also allows investors to trade from their smartphones. This MT4 or MT5 trading platform involves a number of indicators that aid in the process of currency trading.
One such tool is the Forex rainbow indicator. This is a kind of trend momentum strategy that focuses and aids intraday trading significantly and utilizes CCI histogram as well as a Rainbow histogram.
Rainbow indicator and its associated strategies:
This indicator strategy consists of four LWMA and MTF indicators. While the CCI histogram utilizes a time period of 1, 170 or 250; LW Moving Averages instigate the process using the 15, 45, 90 and 135 mark. It also comprises of Price against MA as well as Price across MA paint and MA trend. However, there are two main strategies that comprise the rainbow Forex indicators. They are:
1. Buy rainbow Strategy:
This strategy signifies the optimum time for buying your currency pairs. Experts suggest buying when price rises above the 135 MA while 15 MA crosses upward as well. A normal representation of this MA range goes as 15 MA > 45 MA > 90 MA > 135 MA while CCI histogram values should be more than zero.
Such an approach creates an optimum environment to imply the Rainbow indicator values on a 2-minutes or 5-minutes chart. This helps in carving out an apt buying spot; hence traders go long on their bids.
2. The Sell Strategy:
Experts of the market opine to sell your currency trades when price stoops below 135 MA and 15 MA witnesses a steady decline as well. This is one of the most optimum conditions for Forex Rainbow indicator and most traders look to ponder on this opportunity to close their trades.
In this case, moving averages should be in the range witnessing 15 MA
Color indications of the Rainbow:
Speaking trivially, this Rainbow indicator utilizes five colors for complete representation of price trends as well as the market. Each color is a representation of multiple exponential MAs. Here is a brief explanation.
• Blue EMA concentrates on traders who mainly indulge in intraday approaches. Their MA values include 17, 19, 21, 23, 35, 27, etc.
• Yellow Rainbow Forex indicators primarily represent short term trends. Its figures include 2, 3, 4, 5, 6, 7, 8, 9, etc.
• Red shows long term trading behaviors (78, 82, 86, 90, 94, etc).
• Medium duration trends find representation through Green indications (44, 47, 50, 53), etc.
• Pink are for traders who like to hold their positions for multiple years. (125, 130, 135, 140, etc).
A Rainbow indicator also assists investors in trading through breakouts. It helps investors to distinguish between false breakout signals from real ones. So, a Forex Rainbow indicator emerges to be a crucial marker in deciding optimum currency market trades. However, it is always advisable to consult experts and veterans of the market before stepping into this vast currency world.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.