Rainbow Charts Oil Technical Analysis and Rainbow Charts Trading Signals

Developed by Mel Widner

This is a oil trend following indicator, similar to the moving averages - it is drawn using a 2 period simple moving average. The moving average is then smoothed to create a total of ten moving averages. The 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 oil trend, each moving average is applied with a different colors so as to look as a rainbow.

Crude Oil Technical Analysis & How to Generate Trading Signals

Bullish Crude Oil Trend/ Upwards Oil Trading Trend

When the oil trend in the crude oil market is Upward/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/Downwards Crude Oil Trading Trend

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

Oil Trading Trend Continuation Signal

As the oil trend continues in one direction up or down, the rainbow charts follow the crude oil price closely. The more the crude oil price moves away from the rainbow chart the more the oil trend is likely to continue, this is considered as a oil trend continuation signal. The indicator lines will also continue to expand its width; this is also another oil trend continuation signal.

Oil Trading Trend Reversal Signal

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