Monday, 31 October 2011

Rainbow Volume: Colour Based System from Technical Analysis of Stock & Commodites

In the magazine Technical Analysis of Stock & Commodities (TASC) (July, 2011 issue) there was an a article on short-term trading using a colour based system that looked very interesting, but there was only code for Metatrader 5 and not Metatrader 4. So, I whipped up a Metatrader 4 version, with a new option (...and hopefully down the road there will be some more additions to this indicator):
  • You can set a multi-coloured bar to determine how much of one colour is dominating the rest, or have the standard version with one colour (unforunately, the multi-coloured option only works as the price action currently changes)
Now, how it works is that the indicator takes the value of the current volume and the current price and compares it to the volume and price of n periods ago:
  • Green if current price is and volume is greater than the price and volume of n periods ago
  • Blue if the current price is greater than price n periods ago, but not the volume n periods ago
  • Orange if the current price and the volume is less than the price and volume n periods ago
  • Red if the current price is less than the price n periods ago, but not the volume n periods ago
The rules:
  • Buy when it is Green or Blue
  • Sell when it is Red of Orange
  • Exit with a trailing stop, or if you're really adventurous you exit at the opposite colour change

If you want to know how the full details of how it works, then be sure to check out the article. The website is in My Top Web Sites sidebar.You can download this indicator from the sidebar My Indicators, or by clicking the link below. Enjoy!

Rainbow Volume