Gaussian Rainbow Indicator

Gaussian Rainbow Indicator is a trend-following forex trading indicator based on several moving averages. It employs a collection of eight moving averages of various metrics to create a cloud that indicates market momentum, trend direction, and potential trend reversal situations. As a trader, you can use it to trade any forex currency pair you like, as well as any timescale charts, using the forex MT4 trading platform. Newbie traders looking for easy trading indicators can use it to get started with daily trading.

What is the Gaussian Rainbow Indicator?

The Gaussian Rainbow Indicator employs a set of eight moving averages that form a cloud, signaling the current market trend. Fortunately, you don’t have to count every single moving average of this indicator; instead, you could just follow the cloud direction. The averages are classified into two groups: slow and quick. They cross each other to plot crossovers. The intriguing thing is that you don’t even need to hunt for a crossover. You could simply watch if the price remains above or below the indicator’s trending cloud, as we would with a moving average. You can also use the changes in cloud levels to determine the trailing stop levels of any of your market entries.

Setting up the Gaussian Rainbow Indicator
Setting up the Gaussian Rainbow Indicator

Gaussian Rainbow Strategy

The Gaussian Rainbow Indicator is composed of many moving averages with varying periods. It is made up of moving averages for the short, medium, and long periods. The Gaussian Rainbow MT4 indicator is created as a result of this. It is a simple trend tracking forex indicator based on sound reasoning. When candlesticks trade above the Gaussian Rainbow, it indicates a bullish trend. You could look for buy trades here. When candlesticks trade below the Gaussian Rainbow, it indicates a bearish trend. You could look for sell trades here. It’s a good idea to play about with the indicator’s default period (40) setting to see what works best for you. You could experiment with it for scalping, day trading, and swing trading. It can be used as a buy/sell indication alone or in conjunction with an oscillator to scalp in the direction of the general Rainbow trend.

Buy Signal

The following could be your checklist for a buy trade:

  • When price is trading above the rainbow.
  • When a bullish candle forms right at the top edge of the cloud.

Once these events occur:

  • You could open a buy position after you confirm your entry with bullish candlestick patterns.
  • You could set your stop loss just below the nearest swing low.
  • You could set your take profit at the nearest resistance zone, or you could exit trade when price breaks below the rainbow.
  • For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
Gaussian Rainbow Indicator Buy Setup
Gaussian Rainbow Indicator Buy Setup

Sell Signal

The following could be your checklist for a sell trade:

  • When price is trading below the rainbow.
  • When a bearish candle forms right at the lower edge of the cloud.

Once these events occur:

  • You could open a sell position after you confirm your entry with bearish candlestick patterns.
  • You could set your stop loss just above the nearest swing high.
  • You could set your take profit at the nearest support zone, or you could exit trade when price breaks above the rainbow.
  • For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
Gaussian Rainbow Indicator Sell Setup
Gaussian Rainbow Indicator Sell Setup

Gaussian Rainbow Pros & Cons

Pros

  • The Gaussian Rainbow Indicator helps indicate market momentum, trend direction, and potential trend reversal situations.
  • The indicator can be used with any forex trading system or strategy to confirm trading entries or exits.

Cons

  • The Gaussian Rainbow Indicator may not meet the trader’s expectations in a narrow-ranging market on smaller timeframes.
  • The indicator may produce false signals sometimes via its crossovers.

Conclusion

The Gaussian Rainbow Indicator is a technical tool which is useful for traders who use technical analysis. The indicator tries to advise on market momentum and trend as well. This indicator can be used on all timeframes and currency pairs. Although it can be used as a stand-alone signal provider, it is better combined with price action and other technical indicators. The traders also ought to keep their expectations in check because this indicator does not guarantee profits.

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