Click Here for Step-By-Step XM Broker Account Opening Guide. Some templates are already integrated with the MT4 Indicators from the MetaTrader Platform. Get Download Access. Save my name, email, and website in this browser for the next time I comment.

Sign in. your username. your password. Forgot your password? Get help. Password recovery. your email. Home Forex Strategies Rainbow Moving Average Forex Trading Strategy. Forex Strategies. Table of Contents 1 Rainbow MMA 2 HMA Indicator 3 Trading Strategy 3.

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FXOpen Broker Review — Must Read! Most moving average lines tend to be very lagging. This means that traders might not be able to respond to price action changes quite effectively if they are waiting on a lagging moving average line.

For this reason, traders developed variations of the Simple Moving Average SMA in order to decrease lag. Among these are the Exponential Weighted Moving Average EMA and the Linear Weighted Moving Average LWMA. The Hull Moving Average HMA was also developed to attempt to eliminate the lag which plagues most moving average lines.

The HMA succeeds in decreasing lag significantly, yet it also maintains a moving average line which is very responsive to price changes.

This version of the HMA plots dots instead of a line. These dots change color to indicate the direction of the trend. A light blue dot indicates a bullish short-term momentum, while a tomato dot indicates a bearish short-term momentum. This trading strategy is a trend following strategy which is based on the concept of using moving average lines as a dynamic area of support or resistance.

First, trend direction is identified based on the Rainbow MMA 09 lines. This is based on how the gold and dark sky-blue lines are stacked. The slope of the lines should also confirm the direction of the trend.

On top of this, price action should also confirm trend direction based on the pattern of its swing points. As soon as the trend is established, we then wait for retracements. Price should retrace towards the area of the Rainbow MMA 09 lines. The retracements should cause the HMA v2 dots to temporarily reverse. Trades are taken as soon as the HMA v2 dots resume the color of the main trend while aligned with a candle that confirms the direction of the trend.

Trading on retracements towards an area of dynamic support or resistance is one of the more effective ways to trade in a trending market condition. If used in the right trending market, this strategy could produce constant profits again and again as long as the trend lasts.

However, traders should also be careful not to trade this strategy in a choppy market or in a trend that is not fit for the timeframe. Some trends could be too steep on the shorter timeframes, while other trends could retrace too deep on other timeframes. One way to find out which timeframe to use is to scan through different timeframes and see where price is respecting the Rainbow MMA 09 lines as a dynamic support or resistance. As soon as you find the right trend on the right timeframe, you could start using this trend continuation strategy effectively.

Forex Trading Strategies Installation Instructions Rainbow Trail Forex Trading Strategy is a combination of Metatrader 4 MT4 indicator s and template. The essence of this forex strategy is to transform the accumulated history data and trading signals.

Rainbow Trail Forex Trading Strategy provides an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye. Based on this information, traders can assume further price movement and adjust this strategy accordingly. Click Here for Step-By-Step XM Broker Account Opening Guide. Some templates are already integrated with the MT4 Indicators from the MetaTrader Platform.

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Home Forex Strategies Rainbow Trail Forex Trading Strategy. In other words, its payoff is based on the top or bottom performer. These are sometimes called "best of" or "worst of" rainbow options. A rainbow option could derive value, for instance, from three relatively low-correlated assets like the Russell Index of U.

stocks, the MSCI Pacific Ex-Japan Index, and the Dow-AIG Commodity Futures Index. In a call rainbow written on these three indexes, the option would pay out the difference between the strike price and the level of the index that has risen by the largest amount of the three.

Spread options are technically rainbow options since their payoff is based on the difference in price between two underlying assets. Note that this is not the same as an options spread strategy, such as a vertical spread. Basket options are similar since their payoff is based on the total or net performance of all of the underlying assets in the basket. However, the option is really only based on the value of the basket and not on any individual performances within.

Unlike a basket option, all the assets underlying a rainbow option must move in the intended direction s. Correlation options are a type of rainbow option. An example would be a correlation between two or more assets, and the structure is only activated when an asset moves in or out of a specific range.

They are similar to barrier options but correlation options depend on two underlying assets. Barrier options depend on a single underlying moving in or out of a range.

Examples of barrier options include knock-in options and knock-out options. In the horse racing betting world, a rainbow option can be similar to picking the top three finishers, called a trifecta box. All three horses in the bet must finish in the top three in any order. If they do not, then the bet, and the option, expires worthless.

In terms of stocks, a rainbow could be an option that pays off based on which pair of stocks moves up by the greatest percentage by the expiration date. For baskets of stocks, the payoff can be weighted based on the ranking of the stocks. Perhaps a trader wants a call option on a currency that becomes active if and only if a benchmark interest rate moves outside of its current range.

An airline might want a call option on a fuel commodity that activates if the U. dollar falls significantly. Strategies can be quite complex, although the more complex, the less likely a seller will find a buyer to take the other side of the trade.

A rainbow option is an options contract linked to the performances of two or more underlying assets. They can speculate on the best performer in the group or minimum performances of all the underlying assets at one time.

Each underlying may be called a color so the sum of all of these factors makes up a rainbow. These are a type of exotic option that trade-the-counter OTC. Rainbow options are similar to correlation options and basket options in that those also refer to a number of underlying securities; however, those types of options refer to a single price based on those underlying securities. Rainbow options can be structured in several ways depending on how the performances of each underlying asset are considered.

Some pay off based on the best or worst performance among the covered underlying assets. In other words, its payoff is based on the top or bottom performer. These are sometimes called "best of" or "worst of" rainbow options. A rainbow option could derive value, for instance, from three relatively low-correlated assets like the Russell Index of U. stocks, the MSCI Pacific Ex-Japan Index, and the Dow-AIG Commodity Futures Index. In a call rainbow written on these three indexes, the option would pay out the difference between the strike price and the level of the index that has risen by the largest amount of the three.

Spread options are technically rainbow options since their payoff is based on the difference in price between two underlying assets. Note that this is not the same as an options spread strategy, such as a vertical spread. Basket options are similar since their payoff is based on the total or net performance of all of the underlying assets in the basket. However, the option is really only based on the value of the basket and not on any individual performances within.

Unlike a basket option, all the assets underlying a rainbow option must move in the intended direction s. Correlation options are a type of rainbow option. An example would be a correlation between two or more assets, and the structure is only activated when an asset moves in or out of a specific range. They are similar to barrier options but correlation options depend on two underlying assets.

Barrier options depend on a single underlying moving in or out of a range. Examples of barrier options include knock-in options and knock-out options. In the horse racing betting world, a rainbow option can be similar to picking the top three finishers, called a trifecta box. All three horses in the bet must finish in the top three in any order. If they do not, then the bet, and the option, expires worthless. In terms of stocks, a rainbow could be an option that pays off based on which pair of stocks moves up by the greatest percentage by the expiration date.

For baskets of stocks, the payoff can be weighted based on the ranking of the stocks. Perhaps a trader wants a call option on a currency that becomes active if and only if a benchmark interest rate moves outside of its current range.

An airline might want a call option on a fuel commodity that activates if the U. dollar falls significantly. Strategies can be quite complex, although the more complex, the less likely a seller will find a buyer to take the other side of the trade. Basically, if you can dream up a set of contingencies, you can create an option to speculate on it. Options and Derivatives. Alternative Investments. Advanced Concepts. Company News Markets News Cryptocurrency News Personal Finance News Economic News Government News.

Your Money. Personal Finance. Your Practice. Popular Courses. Options and Derivatives Advanced Concepts. What Is a Rainbow Option? Key Takeaways A rainbow option is an exotic option that uses more than one underlying security.

Rainbow options come in different types and are usually dependent on either the best or worst performer of the multiple underlyings involved. They are usually structured so that the option only activates once certain parameters are triggered. Compare Accounts. Advertiser Disclosure ×.

The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Terms. What Is a Barrier Option? A barrier option is a type of option where the payoff depends on whether the underlying asset reaches or exceeds a predetermined price or barrier.

Currency Option A contract that grants the holder the right, but not the obligation, to buy or sell currency at a specified exchange rate during a particular period of time. For this right, a premium is paid to the broker, which will vary depending on the number of contracts purchased. Defining Mountain Range Options Originally marketed by Société Générale, mountain range options are a trading tactic combining range, rainbow and basket option features.

Structured Investment Products SIPs Definition and Examples Structured investment products, or SIPs, are types of investments that meet specific investor needs with a customized asset mix.

What Is an Exotic Option? Exotic options are options contracts that differ from traditional options in their payment structures, expiration dates, and strike prices. What Is a Basket Option? A basket option is a type of financial derivative where the underlying asset is a group, or basket, of commodities, securities, or currencies.

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Practice this strategy and get a feel when to use it and you could be making consistent profits from the market. All rights reserved. Top 5 Best Forex Day Trading Strategies That Work March 16, You have entered an incorrect email address! Among these are the Exponential Weighted Moving Average EMA and the Linear Weighted Moving Average LWMA. They are similar to barrier options but correlation options depend on two underlying assets. Traders also identify potential trend reversals based on crossovers.

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