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Rainbow MA Forex Day Trading Strategy

Amandeep Sonewane | Aug. 12, 2019
Rainbow MA Forex Day Trading Strategy

You can now download the Rainbow MA Forex Day Trading Strategy for free on AtoZ Markets indicators gallery

The idea behind Rainbow MA Forex Day Trading Strategy is to use the Rainbow MA as an area to wait for pullbacks on. But first, we would have to identify if we are on a trending market or even at the start of a trend.

To identify a trend, we would be using a couple of rules. First, the Rainbow MA should be in agreement with the intermediate trend, the 50-period Exponential Moving Average (EMA). It should be on the correct side of the 50 EMA. Then, price should be pulling away from the Rainbow MA to the direction of the trend. Lastly, as price pulls away, the Rainbow MA would have a tendency to fan out, so it should be fanning out wide enough. Then we wait for the pullback.

Our pullback and entry will be simple. We will wait for the price to pullback and close inside the Rainbow MA, then wait for it to exit and close towards the direction of the trend. This indicates the resumption of the trend. If this happens, then we pull the trigger and watch price run.

The Rainbow MA, a custom indicator, is a moving-average based indicator with several lines. These lines tend to fan out during a trending market environment creating an area that could be visibly identified. Because pullbacks are minor reversions to the average price, the area inside the Rainbow MA becomes a prime area for price to pullback to. Right after the pullback, if a trend has enough strength to continue the trend, it will resume its initial direction. This makes the Rainbow MA a great tool to identify entry areas during trending market conditions.

Indicators:

RainbowMMA_09 (Sky Blue)
RainbowMMA_10 (Gold)
50 EMA (Magenta)

Timeframe: 5-minute chart

Currency Pair: any major pair

How to trade with Rainbow MA Forex Day Trading Strategy?

Entry

  • The Rainbow MAs should be above the 50 EMA
  • Price should come from above the Rainbow MAs
  • The Rainbow MAs should be fanning out
  • Wait for price to retrace and close inside the Rainbow MAs
  • Enter a buy market order as price closes back above the Rainbow MAs

Stop Loss

  • Set the stop loss at the fractal below the entry candle

Exit

  • Close the trade on profit as price enters back and closes inside the Rainbow MAs

Sell (Short) Trade Setup Rules

Entry

  • The Rainbow MAs should be below the 50 EMA
  • Price should come from below the Rainbow MAs
  • The Rainbow MAs should be fanning out
  • Wait for price to retrace and close inside the Rainbow MAs
  • Enter a sell market order as price closes back below the Rainbow MAs

Stop Loss

  • Set the stop loss at the fractal above the entry candle

Exit

  • Close the trade on profit as price enters back and closes inside the Rainbow MAs

How to download and install an indicator?

In order to install the indicator on your MT4 platform, you need to follow these steps:

  1. Click on “Download Indicator” button located at the top right corner of the screen.
  2. Save the file to your computer.
  3. Extract and move the files into MT4>Indicator folder of the MetaTrader4 software file directory.
  4. Restart your Metatrader platform.
  5. Navigate to “Indicators.”
  6. And select “Rainbow MA Forex Day Trading Strategy” template to apply it on the chart.

Note: This indicator was developed by T. Morris. AtoZ Markets does not carry any copyrights over this trading tool.

Disclaimer: The views and opinions expressed in this article are solely those of the author and do not reflect the official policy or position of AtoZ Markets.com, nor should they be attributed to AtoZMarkets.