The rainbow forex strategy was originally developed by the Wicker. Here’s how i use it to trade low risk-to-reward reversals in the currency market.
Currency pairs: Any
Time frame: 5 Min charts
USD/CAD Trade Explanation (see chart above)
Prior trend in the USD/CAD was up, subsequently, the pair didn’t manage to breakthrough resistance after several hours of trading near the high of it’s trading range.
An interesting trade pops up at 9.30 AM (white circles).
Technically: Laquerre somewhat overbought, MACD below 0 and EMA Cross gives a sell signal.
Why did I take this short entry?
Simple, it’s a low risk-to-reward trade opportunity.
Total risk in the market is only 18 pips. (Stop loss placed 3 pips above blue resistance line)
My target is always 50 pips for less volatile pairs (EUR/USD, USD/CAD,..) and 85 pips for high volatile pairs (GBP/USD, GBP/JPY,..)
The USD/CAD trade gave me 50 pips in only 1.5 hours after going short while the risk was only 18 pips. That’s 1: 2.7 risk-to-reward ratio.PS. The USD/CAD currency pair fell almost 100 pips in 4 hours after the short trade setup.