The Gaussian Rainbow indicator is quite popular among Forex traders to help identify trends, retracements, and sideways market. Though, it's nothing special. Just a trend following indicator built from gaussian filtration.
You can use it for short-term, medium term and long term trading. I heard it makes a great companion for scalping along with a momentum indicator or oscillator. Similar to using a single or double MAs, when the stock is trading above the rainbow then we assume it's trading in an uptrend. When the candles are below the rainbow then it's bearish.
A few examples of what the Rainbow indicator looks like:
You can use it for short-term, medium term and long term trading. I heard it makes a great companion for scalping along with a momentum indicator or oscillator. Similar to using a single or double MAs, when the stock is trading above the rainbow then we assume it's trading in an uptrend. When the candles are below the rainbow then it's bearish.
A few examples of what the Rainbow indicator looks like:
thinkScript Code
Code:
# Gaussian Rainbow
# Eric R
# 11.24.2013
declare upper;
# Study Inputs
input gaussian = { "ONE", "TWO", "THREE", default "FOUR" };
input data = HL2;
input length = 10;
input gaussianOrder = 3;
input cloud = yes;
# Definitions
def w;
def beta;
def alpha;
def rbi1;
def rbi2;
def rbi3;
def rbi4;
def rbi5;
def rbi6;
def rbi7;
def rbi8;
# Alpha Calculation
w = ( 2 * double.Pi / length );
beta = ( 1 - cos( w ) ) / ( power( 1.414, 2.0 / gaussianOrder ) - 1 );
alpha = ( -beta + sqRt( beta * beta + 2 * beta) );
# Average Calculations
switch( gaussian ) {
case "ONE":
rbi1 = alpha * data + ( 1 - alpha ) * rbi1[1];
rbi2 = alpha * rbi1 + ( 1 - alpha ) * rbi2[1];
rbi3 = alpha * rbi2 + ( 1 - alpha ) * rbi3[1];
rbi4 = alpha * rbi3 + ( 1 - alpha ) * rbi4[1];
rbi5 = alpha * rbi4 + ( 1 - alpha ) * rbi5[1];
rbi6 = alpha * rbi5 + ( 1 - alpha ) * rbi6[1];
rbi7 = alpha * rbi6 + ( 1 - alpha ) * rbi7[1];
rbi8 = alpha * rbi7 + ( 1 - alpha ) * rbi8[1];
case "TWO":
rbi1 = power( alpha, 2 ) * data +
2 * ( 1 - alpha ) * rbi1[1] -
power( 1 - alpha, 2 ) * rbi1[2];
rbi2 = power( alpha, 2 ) * rbi1 +
2 * ( 1 - alpha ) * rbi2[1] -
power( 1 - alpha, 2 ) * rbi2[2];
rbi3 = power( alpha, 2 ) * rbi2 +
2 * ( 1 - alpha ) * rbi3[1] -
power( 1 - alpha, 2 ) * rbi3[2];
rbi4 = power( alpha, 2 ) * rbi3 +
2 * ( 1 - alpha ) * rbi4[1] -
power( 1 - alpha, 2 ) * rbi4[2];
rbi5 = power( alpha, 2 ) * rbi4 +
2 * ( 1 - alpha ) * rbi5[1] -
power( 1 - alpha, 2 ) * rbi5[2];
rbi6 = power( alpha, 2 ) * rbi5 +
2 * ( 1 - alpha ) * rbi6[1] -
power( 1 - alpha, 2 ) * rbi6[2];
rbi7 = power( alpha, 2 ) * rbi6 +
2 * ( 1 - alpha ) * rbi7[1] -
power( 1 - alpha, 2 ) * rbi7[2];
rbi8 = power( alpha, 2 ) * rbi7 +
2 * ( 1 - alpha ) * rbi8[1] -
power( 1 - alpha, 2 ) * rbi8[2];
case "THREE":
rbi1 = power( alpha, 3 ) * data +
3 * ( 1 – alpha ) * rbi1[1] -
3 * power( 1 - alpha, 2 ) * rbi1[2] +
power( 1 - alpha, 3 ) * rbi1[3];
rbi2 = power( alpha, 3 ) * rbi1 +
3 * ( 1 – alpha ) * rbi2[1] -
3 * power( 1 - alpha, 2 ) * rbi2[2] +
power( 1 - alpha, 3 ) * rbi2[3];
rbi3 = power( alpha, 3 ) * rbi2 +
3 * ( 1 – alpha ) * rbi3[1] -
3 * power( 1 - alpha, 2 ) * rbi3[2] +
power( 1 - alpha, 3 ) * rbi3[3];
rbi4 = power( alpha, 3 ) * rbi3 +
3 * ( 1 – alpha ) * rbi4[1] -
3 * power( 1 - alpha, 2 ) * rbi4[2] +
power( 1 - alpha, 3 ) * rbi4[3];
rbi5 = power( alpha, 3 ) * rbi4 +
3 * ( 1 – alpha ) * rbi5[1] -
3 * power( 1 - alpha, 2 ) * rbi5[2] +
power( 1 - alpha, 3 ) * rbi5[3];
rbi6 = power( alpha, 3 ) * rbi5 +
3 * ( 1 – alpha ) * rbi6[1] -
3 * power( 1 - alpha, 2 ) * rbi6[2] +
power( 1 - alpha, 3 ) * rbi6[3];
rbi7 = power( alpha, 3 ) * rbi6 +
3 * ( 1 – alpha ) * rbi7[1] -
3 * power( 1 - alpha, 2 ) * rbi7[2] +
power( 1 - alpha, 3 ) * rbi7[3];
rbi8 = power( alpha, 3 ) * rbi7 +
3 * ( 1 – alpha ) * rbi8[1] -
3 * power( 1 - alpha, 2 ) * rbi8[2] +
power( 1 - alpha, 3 ) * rbi8[3];
case "FOUR":
rbi1 = power( alpha, 4 ) * data +
4 * ( 1 – alpha ) * rbi1[1] –
6 * power( 1 - alpha, 2 ) * rbi1[2] +
4 * power( 1 - alpha, 3 ) * rbi1[3] -
power( 1 - alpha, 4 ) * rbi1[4];
rbi2 = power( alpha, 4 ) * rbi1 +
4 * ( 1 – alpha ) * rbi2[1] –
6 * power( 1 - alpha, 2 ) * rbi2[2] +
4 * power( 1 - alpha, 3 ) * rbi2[3] -
power( 1 - alpha, 4 ) * rbi2[4];
rbi3 = power( alpha, 4 ) * rbi2 +
4 * ( 1 – alpha ) * rbi3[1] –
6 * power( 1 - alpha, 2 ) * rbi3[2] +
4 * power( 1 - alpha, 3 ) * rbi3[3] -
power( 1 - alpha, 4 ) * rbi3[4];
rbi4 = power( alpha, 4 ) * rbi3 +
4 * ( 1 – alpha ) * rbi4[1] –
6 * power( 1 - alpha, 2 ) * rbi4[2] +
4 * power( 1 - alpha, 3 ) * rbi4[3] -
power( 1 - alpha, 4 ) * rbi4[4];
rbi5 = power( alpha, 4 ) * rbi4 +
4 * ( 1 – alpha ) * rbi5[1] –
6 * power( 1 - alpha, 2 ) * rbi5[2] +
4 * power( 1 - alpha, 3 ) * rbi5[3] -
power( 1 - alpha, 4 ) * rbi5[4];
rbi6 = power( alpha, 4 ) * rbi5 +
4 * ( 1 – alpha ) * rbi6[1] –
6 * power( 1 - alpha, 2 ) * rbi6[2] +
4 * power( 1 - alpha, 3 ) * rbi6[3] -
power( 1 - alpha, 4 ) * rbi6[4];
rbi7 = power( alpha, 4 ) * rbi6 +
4 * ( 1 – alpha ) * rbi7[1] –
6 * power( 1 - alpha, 2 ) * rbi7[2] +
4 * power( 1 - alpha, 3 ) * rbi7[3] -
power( 1 - alpha, 4 ) * rbi7[4];
rbi8 = power( alpha, 4 ) * rbi7 +
4 * ( 1 – alpha ) * rbi8[1] –
6 * power( 1 - alpha, 2 ) * rbi8[2] +
4 * power( 1 - alpha, 3 ) * rbi8[3] -
power( 1 - alpha, 4 ) * rbi8[4];
}
# Plots
plot ga1 = rbi1;
plot ga2 = rbi2;
plot ga3 = rbi3;
plot ga4 = rbi4;
plot ga5 = rbi5;
plot ga6 = rbi6;
plot ga7 = rbi7;
plot ga8 = rbi8;
# Look and Feel
ga1.assignValueColor( color.MAGENTA );
ga2.assignValueColor( color.PLUM );
ga3.assignValueColor( color.BLUE );
ga4.assignValueColor( color.CYAN );
ga5.assignValueColor( color.GREEN );
ga6.assignValueColor( color.YELLOW );
ga7.assignValueColor( color.DARK_ORANGE );
ga8.assignValueColor( color.RED );
ga1.hideTitle();
ga2.hideTitle();
ga3.hideTitle();
ga4.hideTitle();
ga5.hideTitle();
ga6.hideTitle();
ga7.hideTitle();
ga8.hideTitle();
# Cloud Plots
addCloud( if cloud == yes then ga1 else double.NaN, ga8, color.RED, color.BLACK );
addCloud( if cloud == yes then ga1 else double.NaN, ga7, color.DARK_ORANGE, color.BLACK );
addCloud( if cloud == yes then ga1 else double.NaN, ga6, color.YELLOW, color.YELLOW );
addCloud( if cloud == yes then ga1 else double.NaN, ga5, color.GREEN, color.GREEN );
addCloud( if cloud == yes then ga1 else double.NaN, ga4, color.BLUE, color.BLUE );
addCloud( if cloud == yes then ga1 else double.NaN, ga3, color.PLUM, color.PLUM );
