Rainbow Charts Stocks Technical Analysis and Rainbow Charts Stocks Signals
Developed by Mel Widner
This is a stocks 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 and so on. This forms a rainbow shape of the stocks trend, each moving average is applied with a different colors so as to look as a rainbow.
Stocks Technical Analysis and How to Generate Signals
Bullish Stock Trading Trend/ Upward Stock Trading Trend
When the stocks trend in the stock trading 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/Downward Stocks Trading Trend
When the stocks trend is a bearish downward then the rainbow charts will be moving downwards, the major smoothed line (Violet) will be at the bottom and the least smoothed line (Red) will be at the top.
Stocks Trend Continuation Signal
As the stocks trend continues in one direction up or down, the rainbow charts follow the stocks price closely. The more the stocks price moves away from the rainbow chart the more the stocks trend is likely to continue, this is considered as a stocks trend continuation signal. The indicator lines will also continue to expand its width; this is also another stocks trend continuation signal.
Stocks Trend Reversal Stocks Signal
When stocks price starts moving towards the rainbow charts then this is seen as a stocks trend reversal signal. The width of the indicator lines also contracts signifying a stocks trend reversal signal. The reversal Signal is confirmed when the price penetrates through all the rainbow charts and the direction of the rainbow charts also reverses in their respective direction.
