[blackcat] L1 Mel Widner Rainbow ChartNOTE: Because the originally released script failed to comply with the House Rule in the description, it was banned. After revising and reviewing the description, it is republished again. Please forgive the inconvenience caused.
Level: 1
Background
The Rainbow Charts indicator is a technical analysis tool that follows trend. It helps traders to visualize a full spectrum of trends in the market. Mel Widner developed the indicator and elaborated it in the 1997 issue of Technical Analysis of Stocks and Commodities magazine. It uses 10 simple moving averages and hence, it is a very interesting take on a simple moving average.
Function
The basis of the Rainbow Charts indicator are 10 moving averages. The first Rainbow Moving Average is a 2-period simple moving average. It applies recursive smoothing to this first SMA. The first moving average is the base of nine other simple Rainbow Moving Averages of different lengths. Each SMA bases on the previous SMA. The application of the recursive smoothing enables the indicator to create a full spectrum of the current trends in the market. As we know that the financial markets are full of wonders and surprises and we have an indicator that also surprises us. Yes, it is none other than the Rainbow Charts indicator that presents information on the charts in the form of a rainbow. That is the reason that it is known as the Rainbow Charts indicator.
The interpretation of the Rainbow Charts indicator is quite straightforward. The Rainbow Moving Average with the least recursive smoothing stays at the very top of the Rainbow during a bullish trend in the market. Conversely, the moving average with the most recursive smoothing stays at the bottom of the Rainbow.
On the other hand, the positions of the least and the most smoothed moving averages reverses during a bearish trend in the market. Now the least smoothed moving average stays at the bottom while the most smoothed moving average stays at the top of the Rainbow.
The Rainbow Charts indicator’s moving averages track the uptrend or downtrend in the market. The moving averages track the trend as it progresses and cross each other in a sequential order. The distancing of the price from the Rainbow indicates the continuation of the current market trend. Conversely, if the price moves closer to the Rainbow, it suggests that a potential trend reversal is imminent.
The use of the indicator is also quite simple. Traders should look for initiating a buy position as soon as a strong positive move starts. Similarly, they should look for opening a sell position at the very beginning of a strong negative trend. It is important to note that the angle of the moving averages helps to identify the strength of a trend. The steeper curve suggests a stronger trend and vice versa.
Traders can also use the tool in combination with other technical analysis tools as a trend-following indicator. Traders can enter a buy position when indicators suggest a strong bullish trend. They can initiate a sell position when indicators indicate a bearish trend. Technical analysts and experts always suggest to use the Rainbow Charts indicator in combination with other technical analysis tools for successful trading.
Key Signal
Plot a1~c4 --> 10 Rainbow Moving Averages.
Remarks
This is a Level 1 free and open source indicator.
Feedbacks are appreciated.
Rainbowanalysis
[blackcat] L1 Mel Widner Rainbow OscillatorNOTE: Because the originally released script failed to comply with the House Rule in the description, it was banned. After revising and reviewing the description, it is republished again. Please forgive the inconvenience caused.
Level: 1
Background
Mel Widner developed the Rainbow Oscillator and published it in 1997 in the Technical Analysis of Stocks and Commodities magazine.
Function
Mel Widner Rainbow Oscillator helps to predict the changes in the market trend and to follow trends. The oscillator is derived from a consensus of trends that, when plotted in color, has the appearance of a rainbow. It offers only two possible states, the upward and the downward. The Rainbow Oscillator is based on the Rainbow charts trend and is just like the Rainbow Moving Average charts. It works on the basis of a two-period moving average and its graph also helps to identify the highest high value and the lowest low value among moving averages. The Rainbow Oscillator is a simple indicator used to forecast trend reversal. It is a simple yet very important technical analysis tool. The oscillator works on the same rules as does the Rainbow indicator. It uses two simple moving averages, HHV and LLV. The Rainbow Oscillator creates an oscillator with bandwidth lines. Although it is a relatively new indicator but has become very popular for effectively forecasting the changes in the trend direction. The Rainbow Oscillator appears as a director of the trend as it follows the ups and downs of the market. The growing width of the Rainbow indicates that the current trend is likely to continue. The values of the Rainbow Oscillator beyond 80 suggest an unstable market and prone to a sudden reversal of the current market trend. On the other hand, when the prices move to the Rainbow and the Rainbow Oscillator begins to become flat, it indicates that the market is stable and the bandwidth decreases. The Rainbow Oscillator values falling below 20 again indicate an unstable market and also prone to a sudden reversal of the current trend in the market.
In simple words, we can derive the following rules.
The Rainbow Oscillator’s wider width suggests a continuation of the current trend.
The Rainbow Oscillator between -50 and +50 indicates a stable trend.
When traveling beyond 80, the Rainbow Oscillator suggests an unstable market and a possible reversal of the current trend.
The Rainbow Oscillator traveling below 20 also indicates instability and a potential reversal of the current market trend.
Key Signal
PosNeg --> Rainbow Oscillator Output.
Labels and alerts are added.
Remarks
This is a Level 1 free and open source indicator.
Feedbacks are appreciated.
Rainbow Oscillator Strategy Ever since the people concluded that stock market price movements are not
random or chaotic, but follow specific trends that can be forecasted, they
tried to develop different tools or procedures that could help them identify
those trends. And one of those financial indicators is the Rainbow Oscillator
Indicator. The Rainbow Oscillator Indicator is relatively new, originally
introduced in 1997, and it is used to forecast the changes of trend direction.
As market prices go up and down, the oscillator appears as a direction of the
trend, but also as the safety of the market and the depth of that trend. As
the rainbow grows in width, the current trend gives signs of continuity, and
if the value of the oscillator goes beyond 80, the market becomes more and more
unstable, being prone to a sudden reversal. When prices move towards the rainbow
and the oscillator becomes more and more flat, the market tends to remain more
stable and the bandwidth decreases. Still, if the oscillator value goes below 20,
the market is again, prone to sudden reversals. The safest bandwidth value where
the market is stable is between 20 and 80, in the Rainbow Oscillator indicator value.
The depth a certain price has on a chart and into the rainbow can be used to judge
the strength of the move.
WARNING:
- This script to change bars colors.
