Mel Widner developed the and published it in 1997 in the of Stocks and magazine.
Mel Widner helps to predict the changes in the market trend and to follow trends. The oscillator is derived from a consensus of trends that, when plotted in color, has the appearance of a rainbow. It offers only two possible states, the upward and the downward. The is based on the trend and is just like the Rainbow Moving Average charts. It works on the basis of a two-period moving average and its graph also helps to identify the highest high value and the lowest low value among moving averages. The is a simple indicator used to forecast trend reversal. It is a simple yet very important tool. The oscillator works on the same rules as does the Rainbow indicator. It uses two simple moving averages, HHV and LLV. The creates an oscillator with bandwidth lines. Although it is a relatively new indicator but has become very popular for effectively forecasting the changes in the trend direction. The appears as a director of the trend as it follows the ups and downs of the market. The growing width of the Rainbow indicates that the current trend is likely to continue. The values of the beyond 80 suggest an unstable market and prone to a sudden reversal of the current market trend. On the other hand, when the prices move to the Rainbow and the begins to become flat, it indicates that the market is stable and the bandwidth decreases. The values falling below 20 again indicate an unstable market and also prone to a sudden reversal of the current trend in the market.
In simple words, we can derive the following rules.
- The Rainbow Oscillator’s wider width suggests a continuation of the current trend.
The between -50 and +50 indicates a stable trend.
When traveling beyond 80, the suggests an unstable market and a possible reversal of the current trend.
The traveling below 20 also indicates instability and a potential reversal of the current market trend.
PosNeg --> Output.
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