Averages rainbow Indicator For MT5
The Averages rainbow Indicator For MT5 can plot up to 256 averages with two different colors onto the chart. These averages can be used for trend continuation trading as well as reversal trading if you know how to detect divergences. The indicator can draw the values based on the calculation methods SMA, EMA, Smoothed MA and LWMA.
The Averages rainbow Indicator For MT5 is often considered as a complex filter. But those who know the functions of the rainbow indicator can take the reading in a very easy way.
The core function of the rainbow indicator is similar to the use of the moving average. People who are skilled in using the moving average can easily get quality signals with the help of the Averages rainbow indicator. The core function is based on 256 moving averages. The color of the moving average changes with the shift in the market momentum.
When the momentum is up, the color of the bands is blue. And in the bearish trend, the color of the bands becomes brown. The moving average used in this indicator works on the 4 types of variations. Simple, exponential, smooth, and linear weighted moving average is used in the trade execution process.
Though it can create a messy band in the chart utilization of this indicator in a proper manner can give you an excellent filter.
Trading ideas with the Averages rainbow Indicator For MT5
Before you move to the function of the average rainbow indicator, you have to develop a system that works on a higher time frame. Since the core function of the filter is based on the moving average, taking the reading from a higher time frame generates a much more accurate reading.
Things might be challenging but you can easily transform a short time frame trading system to a higher time frame strategy by using a demo platform. And those who are using the higher time frame trading method can easily sync the averages rainbow indicator to their existing trading method.
So, it is safe to assume, the function of this classic filter is also related to the performance of the trading strategy. If the strategy fails to win more than 60% of the time, the averages rainbow indicator won’t be able to give coherent signals. This means you won’t find any ideal or well-synchronized trade setups based on the data of this indicator.
Averages rainbow Indicator For MT5 - Buy Entries
To buy an asset, investors usually look at the important support level. The support level limits the downfall in the price and creates a bullish price action pattern. With the help of your existing trading system, you should be able to find a well-balanced buying zone in the trading instrument.
Finding the buying signal in accordance with the bullish price action signal usually gives the trader a strong idea that the market is going for a strong bullish rally. But we need a strong confirmation from the averages rainbow indicator. If it’s a trend trading method, the color of the averages rainbow indicator will be blue.
However, when the market goes for a deeper correction to test a major support level, you will see a color change in the averages rainbow indicator. That means, the brown color bands in the averages rainbow indicator, is nothing but the indication of a bearish correction when the key support or the trend line is still intact.
Open your long trade with the confirmations from the indicator and don’t get biased by seeing the potential trade setups in minor support levels. Be sure the risk is not exceeding 2% of your account balance because if it doesn’t, you are going to lose a big sum in the long run.
Averages rainbow Indicator For MT5 - Sell Entries
The use of the averages rainbow indicator in taking the short trades is very similar. But we will discuss the trading technique in a different way. Many traders use the chart pattern trading strategy to open their trades. Chart pattern trading methods become very daunting when the investors intend to trade major reversal.
But this can be done with confidence when the averages rainbow indicator is taken into consideration. Since we will be learning to open the short trade, we have to find a strong break of the important support level. As the support level should match the important line of the chart pattern.
For instance, if you intend to trade the head and shoulder pattern, the support level is the neckline of the chart pattern. Right at the break of the neckline, there should be a shift in the 256 moving averages. The shift will result in the prominent change in color in the averages rainbow indicator.
Since the market is going for a bearish dive, the averages rainbow indicator will become brown in color and the slope will be pointing south. The pattern will resemble a net thrown into the water. But, you should be testing your skills and stress management level in the demo platform before you start taking the trades in key reversal. Unless you do so, it will be hard to come up with the real market.
Averages rainbow Indicator For MT5 - Conclusion
Now you should have a clear concept about the use of the averages rainbow indicator. People who are trying to earn a big amount of money has a lot to learn about this market. Just because the averages rainbow indicator can filter the different phases on the trend, doesn’t make it the best indicator.
In fact, the same indicator can functions differently since the traders use it in a different manner. People who have extensive experience can use the bands of this indicator as to the dynamic support and resistance level also. But to execute trades at these bands, a trader must look for the price action signals.
Regarding the short time frame trading strategy, the indicators become the key source of massive confusion as to the color of the band's changes on a frequent basis. This is nothing but the absence of a dominant trend in the lower time frame. Unless you are super sure about the functions of your lower time frame trading strategy, it is best to use this indicator to trade the higher time frame.
If the things are done in the correct order, a trader should be expecting to win at least 80% of the time just by using the averages rainbow indicator as a filter tool.