The Rainbow Trend MT4 forex indicator consists of a mix of the relative strength index (RSI) indicator and QQE.
The indicator is not only very good looking (beautiful rainbow) but also delivers good results.
It’s a trend-following trading indicator.
For an up trending market, the red colored lines must be aligned below the yellow lines AND the green lines must be aligned above the yellow lines.
For an down trending market, the red colored lines must be aligned above the yellow lines AND the green lines must be aligned below the yellow lines.
This indicator is useful and efficient for scalping (M1, M5 charts), day trading (M5, M15 charts), swing trading (M30, H1 charts) and position trading (H4, D1 charts) for any currency pair.
The indicator is extremely beginner friendly and self-explanatory.
Free Download
Download the “adaptive-relative-strength-index-smoothed.mq4” MT4 indicator
Indicator Chart (EUR/USD H1)
The EUR/USD H1 chart below displays the Rainbow Trend forex indicator in action.
Basic Trading Signals
Signals from the Rainbow Trend indicator are easy to interpret and goes as follows:
Buy Trade: Open buy when the red colored lines are aligned below the yellow lines AND the green lines are aligned above the yellow lines.
Sell Trade: Open sell when the red colored lines are aligned above the yellow lines AND the green lines are aligned below the yellow lines.
Close the open trade at an opposite signal or use your own method of trade exit.
Rainbow Trend and Stochastic Alerts Forex Scalping Strategy for MT4
This MT4 scalping strategy combines the trend filter of the Rainbow Trend Metatrader 4 Forex Indicator with precise entry signals from the Stochastic Alerts Forex Scalper Indicator MT4.
The Rainbow Trend indicator shows trend alignment using colored lines: a bullish trend is confirmed when the red lines sit below the yellow line and the green lines sit above the yellow line.
A bearish trend is in place when the red lines sit above the yellow line and the green lines sit below the yellow line.
The Stochastic Alerts indicator gives clear entries with purple rectangles signaling buy opportunities and brown rectangles signaling sell opportunities.
This strategy works well on short timeframes suitable for scalping such as M5 and M15.
It helps traders enter only when the market is in a defined trend and the momentum has provided an entry cue.
The combination of trend alignment and clear entry signals improves trade quality by filtering out many false scalping attempts during choppy market conditions.
Buy Entry Rules
- The Rainbow Trend indicator shows a valid bullish trend: the red colored lines are aligned below the yellow line and the green lines are aligned above the yellow line.
- The Stochastic Alerts Forex Scalper Indicator displays a purple colored rectangle, signaling a buy entry.
- Enter a buy trade at the close of the candle where the purple rectangle appears while the Rainbow Trend remains in bullish alignment.
- Place the stop loss a few pips below the recent swing low or recent consolidation low.
- Exit the trade when the Stochastic Alerts indicator changes from purple to brown or when the Rainbow Trend loses bullish alignment.
Sell Entry Rules
- The Rainbow Trend indicator shows a valid bearish trend: the red colored lines are aligned above the yellow line and the green lines are aligned below the yellow line.
- The Stochastic Alerts Forex Scalper Indicator displays a brown colored rectangle, signaling a sell entry.
- Enter a sell trade at the close of the candle where the brown rectangle appears while the Rainbow Trend remains in bearish alignment.
- Place the stop loss a few pips above the recent swing high or recent consolidation high.
- Exit the trade when the Stochastic Alerts indicator changes from brown to purple or when the Rainbow Trend loses bearish alignment.
Advantages
- Combines trend direction with precise entry signals to improve the quality of scalping setups.
- Visual trend alignment rules help avoid counter trend scalping attempts.
- Clear colored entry rectangles make it easy to spot trade opportunities without overanalyzing.
- Works effectively on M5 and M15 timeframes where short swings are tradable.
- Helps reduce emotional decision making with structured rules.
Drawbacks
- Scalping signals can occasionally lag during fast, volatile breaks.
- Sideways or low volatility markets may still produce mixed rectangles and trend shifts, leading to false entries.
- Requires discipline to exit when signals reverse, even if the price seems to still be moving with the trend.
- Higher spread pairs can reduce effective scalping profits on shorter timeframes.
Case Study 1 – USDCHF M5
On USDCHF using the M5 timeframe, the Rainbow Trend lines aligned in bullish order with the red lines below the yellow line and the green lines above the yellow line.
Shortly afterward, the Stochastic Alerts indicator printed a purple rectangle.
A buy trade was entered at the close of the signal candle with the stop loss placed a few pips below the recent swing low.
Price moved higher in short increments and the trade was closed when the Stochastic Alerts changed color from purple to brown, capturing 12 pips in a quick scalp as momentum weakened.
Case Study 2 – EURCAD M15
On EURCAD in an M15 chart session, the Rainbow Trend indicator showed valid bearish alignment with the red lines above the yellow line and the green lines below the yellow line.
A brown Stochastic Alerts rectangle appeared signaling a sell entry.
A sell trade was entered at the close of the candle and the stop loss was placed just above the recent swing high.
Price continued to slide lower and the trade was closed when the Stochastic Alerts switched to purple, capturing 28 pips as the bearish run completed on this timeframe.
Strategy Tips
- Only enter trades when the Rainbow Trend lines are clearly aligned; avoid ambiguous conditions where lines cross frequently.
- Confirm that the colored entry rectangle appears after the trend alignment is confirmed; avoid entries before the trend structure is in place.
- Monitor higher timeframe trend direction for context; trades that align with larger timeframe trends often perform better.
- Avoid trading during major news releases, as sudden volatility can trigger premature exits or false signals.
- Practice proper risk management and limit the number of open positions to stay disciplined in scalping conditions.
Download Now
Download the “adaptive-relative-strength-index-smoothed.mq4” Metatrader 4 indicator
MT4 Indicator Characteristics
Currency pairs: Any
Platform: Metatrader 4
Type: chart pattern
Customization options: Variable (History, TimeFrame, BBSmooth, QQESmooth, Mode) Colors, width & Style.
Time frames: 1-Minute, 5-Minutes, 15-Minutes, 30-Minutes, 1-Hour, 4-Hours, 1-Day, 1-Week, 1-Month
Type: Trend Following
