The Rainbow Oscillator Indicator is mainly used to forecast the changes in trend direction. Developed and described in the July 1997 by Mel Widner in the issue of Technical Analysis of Stocks and Commodities magazine. It is based on a two-period simple moving average. This indicator, each being based on the previous MA (moving average) and recursive smoothing is applied to the original moving average to create nine additional moving averages. As a result, obtained is a full spectrum of trends in a process of repetitive smoothing, which plotted on a chart with continuous colors. This also has the appearance of a rainbow.
The Rainbow Oscillator Indicator is same as the Rainbow MA charts, and this is an indicator which is used to follow trends and its graph is plotted based on the same calculations made to find the Rainbow Charts. This Rainbow oscillator is a derivative from a consensus of the Rainbow charts trend. This trend is also defining the highest high value and lowest low value among those moving averages which is also creating an oscillator and bandwidth lines according to those calculations.
Usage of the Rainbow Oscillator Indicator :
The traders can find the Rainbow Oscillator indicator In the Zerodha Kite platform, under the STUDIES section. Also this is available in the Kite mobile App. The Field is Close you can set it. The Period is 2 and you can set the value of it high and low. The HHV/LLV Lookback and you can set the value of it high and low. is 10 You can check how we attached the indicator in Reliance Industries share price chart. In this indicator on to any charts likes daily, weekly, monthly or intraday you can attach.
Interpretations of Rainbow Oscillator Indicator:
This indicator is mainly used the financial indicators which is to predict with a certain rate of accuracy the trends of the market. In this indicator when a market is rising and the trend is to go up, the most abrupt line is at the top of the Rainbow and the smoothed line is at the bottom of the Rainbow. In the same way, when the market is declining and the trend is to go down, the Rainbow has reversed also the least smoothed line is at the bottom and the smoothest line as at the top of the Rainbow. When market prices go up and down, then the oscillator appears in the direction of the trend. But also as the safety of the market and the depth of that trend of this indicator.
In Rainbow Oscillator indicator, the rainbow grows in width, the current trend gives signs of continuity. If the value of the oscillator goes beyond 80, the market becomes more and more unstable condition. The oscillator becomes more and flatter when prices move towards the rainbow and the market tends to remain more stable and the bandwidth decreases. If the oscillator value goes below 20, then the market is again and prone to sudden reversals. The market is stable between 20 and 80 where the safest bandwidth value. In this indicator, the depth of a certain price has on a chart and into the rainbow can be used to judge the strength of the move.
The main conclusion of Rainbow Oscillator indicator is markets are not random. They have continuously tried to determine a specific and secure way to predict the movements the markets are the most predisposed to make. The traders have developed financial indicators to help them forecast the market trends in logical and exact ways. In mathematical analysis this has always helped in the definition of indicators and market investing has proved itself to be a science that day. The developer of this indicator Mel Widner introduced a colorful technique for plotting an indicator to signal trend changes. The Rainbow Oscillator indicator is derived from a consensus of trends that has the appearance if a rainbow, when is plotted in color. This is mainly used for buying and selling signals, as well as determining overbought and oversold positions. In conclusion, everyone can invest successfully in the market as long as they have the little programs that help create the easy to read and self-sufficient financial indicator charts.
Ankita has done her Diploma Engineering in Computer Science & Technology. She is pursuing her degree in Engineering and also well experienced in the equity market and real estate related content writing. She is the one who has developed the technical indicators section of our site.