Rainbow Madness Strategy

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Complex trading system #15 (Rainbow Madness)

Submitted by Azim

I just found a strategy that should be easy for anyone here..but first of all i would like to thank the author (Trader100) for sharing and thanks to Edward & the team too for leading us to the path to become a ‘real’ trader.

Alright lets get started=D

Timeframe : 30min
Pairs : GBP/JPY, GBP/USD, EUR/USD (Recommended)

RAINBOW MADNESS V1

Just take a look at these examples.

All these trades were profitable. But you can not see 7. And 8. Trade profit area. I just can say it was hit. Just so you believe me there is another pic

If you would take some trades after trade 8. Your profit would still get hit as you can see last move down.

If we take a look at these examples we can say that we go long if price is above RAINBOW and short if price is below RAINBOW. We can also say that we go long or short if rainbow colors are in right order. Take a look at pic again and you’ll understand.
We want for price to find support somewhere in rainbow NOT somewhere on other side of rainbow.

So first of all what we need:

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Rainbow MMA06
Rainbow MMA07
Rainbow MMA08

For those who don’t use MetaTrader:

MMA06 MMA07 MMA08

68 EMA 50 EMA 35 EMA
65 EMA 47 EMA 33 EMA
62 EMA 44 EMA 31 EMA
59 EMA 41 EMA 29 EMA
56 EMA 39 EMA 27 EMA
53 EMA 37 EMA 25 EMA

We have to add 2 EMAs as well:

10 EMA close
12 EMA open

Make your rainbows in different colors. In my chart – 06 is green, 07 is purple, 08 is blue.

So stoploss and take profit. It’s easy to place stoploss. Real art is to place take profit right. I use FIB levels as TP. If you like you can add 50 EMA, 89 SMA, 150 SMA, 200 SMA, 365 EMA and use them as profit areas. Also you can use big numbers.
So:
• FIB levels
• MA’s
• Big numbers
• 10/12 EMA cross
• Etc.
I place my stoploss at previous high/low. If SL is very small and there is very high possibility it is going to get hit, place it at next high/low.

So SL and TP examples. WHITE – SL and BLUE – TP

Long:
Rainbow 07 is above rainbow 06 and rainbow 08 is above rainbow 07
10 ema and 12 ema cross

Short:
Rainbow 08 is below rainbow 07 and rainbow 07 is below rainbow 06
10 ema and 12 ema cross

Next is the improved version

RAINBOW MADNESS V2

What we need for RAINBOW MADNESS v2:

MACD
Heiken Ashi Smoothed
Many MA’s
Trigger MA’s
Stoch
And a trend.

MACD – 9:19:1
Heiken Ashi Smoothed – 2:17:3:2
MA’s – If you use MetaTrader than all you need is 06,07 and 08 set Rainbow’s. If you dont you have to put these on your chart:
MMA06 MMA07 MMA08

68 EMA 50 EMA 35 EMA
65 EMA 47 EMA 33 EMA
62 EMA 44 EMA 31 EMA
59 EMA 41 EMA 29 EMA
56 EMA 39 EMA 27 EMA
53 EMA 37 EMA 25 EMA

Every set of MA’s should be in different color. Just so it would be easier for you.

Trigger EMA’s – 10 EMA (open) ; 6 EMA (close)

You can use other set of trigger EMA’s if you want to. Like 5 EMA (open); 5 EMA (close) etc. But you should know that every MA’s set has problems. Find one that works for you or use 10/6 or 10/8

Stoch – If you want you can use usual stoch but it takes some room so I like to use stoch alert.
Stoch 8.3.3
Overbought – 75
Oversold – 25

If you want to use usual stoch than put it on your chart with stoch alert just so you could understand why usual stoch gives many more signals.

Why we need all these indicators?

Cuz everyone of them improves other.
Like trigger MA’s. They give many false signals but Stoch helps to escape them. And sometimes stoch gives false signals and MA’s help.
Heiken Ashi candles work together with Rainbow.

MACD:
I have added 2 levels to MACD: 4.5; -4.5. The are between them is called Silent Zone. When MACD is somewhere in this channel we don’t take any trades. When MACD candle ends above/below this channel we can start to think – yes or no.
Why do I need this stupid channel you ask? See example.
Everything is showing that price is going down: RED Heiken Ashi, Rainbow, stoch, Trigger MA’s and MACD but MACD is still in the Silent Zone (We would enter trade on next candle after blue line if this would be right trade)
So no trades while macd IS IN SILENT ZONE.

Next 4 canles: (stoch)

With this I mean that we enter trade only on next 4 candles after stoch makes a cross. If everything gives a signal later we don’t take the trade.
One thing about stoch alert. Stoch makes cross AFTER arrow candle ends.
That’s when we start to watch if we can take the trade.

So anyway 4 candles. In this case we can enter trade only on sixth candle.
Much too late.

So anyway rules for entry:

LONG –
MACD is above 0 and out of Silent Zone and previous candle is green.
Stoch has made a cross. (Arrow on my chart. REMEMBER – stoch has made a cross after arrow candle. So first candle when we can enter trade is candle after arrow candle)
Rainbow is in right order. If you don’t know what is right order see Rainbow Madness V1.
Price bounces off somewhere in rainbow.
Previous heiken ashi candle is blue.
Trigger MA’s has made cross.
REMEMBER – 4 candles!

SHORT –
MACD is below 0 and out of Silent Zone and previous candle is red.
Stoch has made a cross. (Arrow on my chart. REMEMBER – stoch has made a cross after arrow candle. So first candle when we can enter trade is candle after arrow candle)
Rainbow is in right order. If you don’t know what is right order see Rainbow Madness V1.
Price bounces off somewhere in rainbow.
Previous heiken ashi candle is red.
Trigger MA’s has made cross.
REMEMBER – 4 candles!

I believe that examples will help you understand much better.

And now – Take Profit and Stop Loss.
That’s up to you. I’m just going to make a list and you can chose or if you want do it how you like it.
SL-
previous high/low
round number areas
strong s/r level
Some indicator like bbands stop v1

TP-
Fibo levels
R:R 1:1
S/R levels
Some indicator
Price action
Etc.

Those files are the explanation and indicators.

What I want to discuss is on “Rainbow Madness V2” as I hardly understand some of them. so hope you guys can help me on this.

Edward Revy,
http://forex-strategies-revealed.com/

Copyright © Forex Strategies Revealed

This is fasinating great job brother, in fact i wish my self fruitfull pips with your system.
i love
CK.2X.

modified moving average = MMA = google it

Hello Azim,
I’m a newbie to this forum, I’ve been looking at your system with interest, looks good. So if the conditions including the Macd moving outside the 4.5+-, the heiken ashi is correct color for the trend etc are met, is it after the signal candle has closed & the stockastic alert arrow has appeared, that you enter on the cross of the MA’s only on & to the 4th candle. It seems if you always entered on the 4th most of a move could be gone. Could you clarify that.
Thanks Alexs

Josh, what you mean? Please quote the sentence about 4 candles..

Can you please clarify what do you mean by 4 candles? Thanks a lot. Nice strategy.
Josh

The template for MT4 comes with .TPL file extension.

There is a template file in the ZIP folder on the first page.
If you don’t succeed with opening it, send an email to Edward via the contact form and he should send you the template file.

MMA – Multiple moving average

It refers to a number of moving average.

Hello there, i will try to upload the template as soon as possible..for now i could not send it because i just sent my laptop for repair

Hello, can you please resend your Rainbow Template. I can’t seem to open it or see where it was created. It seems to be corrupted. Thanks in advance!

You’re Welcome and good luck in your trading, may the pips be with you =)

HAPPY TRADING! =D

I must say this looks really good. i ve still not traded with it, as I just got it loaded. I must say thanks to Azim for giving such a nice system. Thank again.

Rainbow Madness – Looking for the Leprechaun’s Pot of Gold

Full Review of the Rainbow Madness Strategy for Binary Options

I’ve been thinking a lot lately about trends and how a relatively inexperienced trader can easily identify them. Higher Highs, Higher Lows and all that stuff is sometimes too complicated for a newbie. Trend lines…are too subjective because different traders can draw them differently. But then I stumbled upon the Rainbow Madness strategy and I figured: if it’s not a great strategy, at least we will have a good trend indicator to use for other strategies…or at least we will have some good looking charts. Ok, let’s cut to the chase and see how to use it:

How to use The Rainbow Madness

If you take a look at my chart below, you will understand where the name comes from and probably how to use the strategy. The main idea behind it is to identify the trend with the use of a lot of moving averages that have to be arranged in a particular order. When the trend is identified, we wait for a cross …of another two moving averages (yes I know, it’s madness) and finally, we trade. I am not going to tell you all the moving averages periods but I’m gonna do something even better: I’m gonna give you some indicators and those will plot all the rainbow moving averages on your chart. You still have to apply the other two manually: 10 periods Exponential Moving Average and 12 periods Exponential Moving Average. Here is how the chart will look like:

The Blue, Purple and Green Moving Averages constitute the Rainbow and we consider price is in an uptrend when the MAs are arranged in a certain way: Blue above, Purple in the middle and Green at the bottom. The opposite applies for a downtrend. Ok, when a trend is in place according to the Rainbow, we take the first EMA 10 and EMA 12 cross in the direction of the trend. I think I am going to explain that just to make sure everybody gets it right: if we are in an uptrend we will only trade when a bullish cross occurs, meaning that EMA 10 crosses above EMA 12. If we are in a down trend, we only trade on a bearish cross, meaning that EMA 10 crosses below EMA 12. Here’s the picture explaining what I’ve just said:

Once all the conditions are met, a Put or Call can be placed accordingly. The choice of time frame and expiry time must be made by you but I would use a higher expiry time than the chart time frame. So if I trade using a 5 minute chart, I would set the expiry for 15 minutes.

Here is a summary of the entry rules:

Call Entry:

  1. Blue MAs are at the top, Purple ones are in the middle and the Green ones are at the bottom
  2. EMA 10 (Red) crosses above EMA 12 (Yellow)

Put Entry:

  1. Blue MAs are at the bottom, Purple ones are in the middle and the Green ones are at the top
  2. EMA 10 (Red) crosses below EMA 12 (Yellow)

Hint: obviously the Purple MAs are going to be in the middle whenever there’s a trend so don’t worry about them.

You can download Rainbow Madness archive containing the three indicators and once you install those (you need to paste all three in your “indicators” folder) and apply them to a chart, the Rainbow moving averages will appear (yea, technology makes rainbows appear nowadays). The indicators are for the Meta Trader 4 platform so if you don’t use that, I will be happy to tell you the MA settings for you to apply them manually. Just ask me on our Forum. However, no matter the platform, EMA 10 and 12 will be applied manually.

To make it easier, I have also attached a template (.tpl). That must go into C:\Program Files\YOUR MT4 BROKER NAME\templates. Then you have to re-open your MT4, right click on a chart, go to “Template” and select “Rainbow”. If you don’t use the template you will have to do some tweaking to the Rainbow colors so they will look like the ones on my chart. I recommend the use of the template.

Why does the Rainbow Madness Suck?

Traders have always complained about the lagging nature of the Moving Average and now I’m gonna let my nagging self do the talking: they laaaag…until all the MAs are arranged, price is gone. It’s not like I can call Apple and say “Hey, don’t release your Earnings Report just yet, my MAs are not arranged and your charts will move too fast…Wait a little, wait, wait…Ok, now you can release it.” Well, no system is perfect and this one will make us miss some trades in fast moving markets or will even give late entries.

Why Rainbow Madness doesn’t Suck?

Although it can be a bit sluggish sometimes, the Rainbow keeps us out of ranging markets: when the MAs are mixed up, you know it’s no time to trade and it’s best to stay away. Trends are not single moves and this means the Rainbow will have time to arrange itself properly and especially if we trade several assets, we will learn to pick only the best signals.

Wrapping it up: Newbies Approved

This is a pure trend following strategy and it is known this type of strategy has a high success rate. It is not exactly what I would trade, but some traders (especially beginners) will find it great for trend recognition. The original strategy can be found at http://forex-strategies-revealed.com/complex/rainbow-madness and if you follow the link, you will see there’s also a second, more complex version of the strategy but I consider it would just overcomplicate things and confusion would set in…if it didn’t already (hope not). So thanks to the guys who coded the indicators and good luck if you need it.

Find out more about Rainbow Madness Strategy for Binary Options Trading on Forum

Rainbow Madness Strategy

Even inexperienced traders can easily identify trade. Highs and lows may be easier to grasp even for novice traders. But sometimes they can be too complicated and too demanding for the brain to grasp. Take trend lines for example. They can be too subjective because various traders can have different drawings on them. One thing that can make trading a whole lot easier is indicators. A good trend indicator that you can use is the Rainbow Madness Strategy. This can actually give you some attractive charts.

HOW TO USE RAINBOW MADNESS STRATEGY?

The name itself comes from the image formed in the chart which a rainbow like formation. The idea behind this strategy is to know the trend using numerous moving averages that needs to be arranged in a specific order. Once you have identified the trend you need to two other moving averages or a cross. This may be madness but you have to trade.

The rainbow is made up of Green, Purple, and Blue moving averages. When Moving Averages are being arranged in a specific way (Blue is in top, Purple is in the center, and Green is below) that is when price is in an upward trend. As for downward trend, it is the exact opposite. Once a trend is in its place in accordance with the Rainbow, you take the 1st EMA 12 and EMA 10 cross in the trends direction. When you are in an upward trend you will have to trade when there is a bullish market. This means that EMA 10 crosses on top of EMA 12. If you are in a downward trend, you will have to trade on bearish cross. This means that EMA 10 crosses just below EMA 12.
When the conditions are all met, a Call or Put can hence be placed. You have to do the selection of expiry time and time frame. However, you may use higher expiry time that your chart’s times frame. Therefore, if you are trading using a five minute chart you could set the expiry time to fifteen minutes. You can simply download and install Rainbow Madness archive that has three indicators. When you have installed it you have to paste all of these in your desired folder. You also need to apply all three to a certain chart. Upon installation, you will also see Rainbow moving averages. These indicators are for MT4 platform. Thereby, if you do not use this then you can use them manually.

WHY IS THIS STRATEGY BAD?

Many traders who are using Moving Averages have always complained about its constant lags. As a matter of fact, these complaints are legit because even when you use it they actually lag. The lagging stops once the moving averages are arranged. And when these averages are arranges prices will be gone. The sadder thing here is that you will have no one to complain to when these averages lag. All you can do is wait. However, no system is actually perfect and Rainbow Madness is no exemption of the imperfection rule. The obvious imperfection of this strategy is that it can make you miss trades in markets that are fast moving. It can even give you very late entries.

WHY IS THIS STRATEGY GOOD?

Yes it lags thereby it is sluggish but it can easily compensate with this negative factor. The Rainbow Madness strategy can keep us away from ranging markets. When you realize that the moving averages are all mixed up you will know that it is not the right time to execute your trade. Thereby it is ideal to back away. Trends are not individual moves. This means that the Rainbow can still have time to properly arrange itself. Particularly when you trade different assets, you will then learn how to pick the best signals only.

FINALE

The Rainbow Madness is purely trend following. This kind of strategy comes with high success rates. It may not be your ideal trading tool but for some traders, most especially novices, they will find it ideal for recognizing trends. There may be other versions of this strategy but this one can be easily understood and there are less confusion added to it.

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