In Binary option World, even inexperienced traders can easily identify trade and get profit. It doesn’t matter which platform you are using, Highs and lows may be easier to grasp even for novice traders. But sometimes they can be too complicated. It can become a matter of subjective judgement because various traders can have different drawings on them. You know! One thing that can make trading a whole lot easier is indicators. That why we have come up with Rainbow Madness Strategy. This can actually give you some attractive charts.
What is Rainbow Madness Binary Option Strategy
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.
Timeframe : 30min
Pairs : GBP/JPY, GBP/USD, EUR/USD (Recommended)
Rainbow Madness Strategy rules:
- Blue MAs are at the top, Purple ones are in the middle and the Green ones are at the bottom
- EMA 10 (Red) crosses above EMA 12 (Yellow)
- Blue MAs are at the bottom, Purple ones are in the middle and the Green ones are at the top
- EMA 10 (Red) crosses below EMA 12 (Yellow)
How Rainbow Madness Binary Option Strategy works
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.
Advantages of Rainbow Madness Strategy
- 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.
Disadvantages of Rainbow Madness Strategy
- 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.
The bottom line
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. 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.