Complex trading system #15 (Rainbow Madness)

Submitted by Azim

Hello everyone..

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:

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

And rules:

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.

SETTINGS:

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.

Downloads:

RainbowMMA_06.mq4
RainbowMMA_07.mq4
RainbowMMA_08.mq4
rainbow_template.zip
_Heiken_Ashi_Smoothed.mq4
_Stochastic_Cross_Alert.mq4

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.

HAPPY TRADING!
Azim

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