Trading Binary Options Using Rainbow Strategy

Today I write this post to show one strategy that I have been using to analyze and trade markets every day. The strategy is called rainbow strategy and this strategy is not my proprietary strategy that I created myself but I have adapted it by adding some features. You should note that every strategy doesn’t have 100% winning rate and I won’t also promise that this strategy will give you a consistent 70% or 80% because there is no sure-game in Forex markets and if someone claims that their strategy will give that winning all the time, I guess you should not believe that if you know how markets work yourself. However, if you follow my strategy and money management strictly with the highest discipline, you will make profits from binary options. Losing some money along the way is normal in the trading business.

Without further ado, let’s get started.

The first thing you need is a Metatrader 4 platform but you can also use any charts as long as they have moving average indicator available for use. If you use MT4 platform, you can download my ready-made template here. If you use other charts, you need to set up moving averages as below.

Note: if you know classic rainbow strategy on Youtube or other places, they make use of only 3 moving averages but now I have added one more moving average to identify major trend and trade accordingly.

1. Exponential Moving Average Period 200 (To determine the main trend and you should choose thicker line and any color you like to easily see the main trend.)


2. Exponential Moving Average Period 26 (Color should be yellow; line thick)


3. Exponential Moving Average Period 14 (Color should be pink; line also thick)


4. Exponential Moving Average Period 6 (Color should be blue; line not so thick here)


5. Timeframe: M5


6. Assets: Major Forex Pairs

Or download my MT4 Template Here.

Now you have set up all the indicators, let’s start trading.

One advice about trends: to use this strategy well, the market need to be trending, not ranging. As you know, identifying a trend is very easy and you don’t have to use any indicator to tell whether it is a trend or not. Use your eyes. Remember: Don’t use this strategy with ranging markets period. Below are some pictures about trending and ranging markets.

Figure 01: Uptrend or Bullish Trend

Figure 02: Downtrend or Bearish Trend

The strategy is basically about going with a trend as one says trend is your friend. We will enter the market at the trend retracement point according to this strategy.

I put 200 moving average to identify the major trend so:

1. When the price is moving below 200 moving average, you have to trade put or sell only. No buy or call here.


2. When the price is moving above 200 moving average, you have to trade call or buy only. No put or sell here.

Look at the picture for illustration. For this chart, you have to trade Put or Sell options only.

Figure 03: Downtrend below 200 Moving Average

When to buy or call

• Price is trending above 200 moving average.


• 26 moving average is below both 14 and 6 moving averages.


• 14 may or may not be below 6 moving average; it doesn’t make any problem.


• Wait for the price to move to touch 14 moving average and as it happens, go to your binary options broker and place a call trade with expiration of 15-20 minutes.

Figure 04: When to buy

When to sell or put

• Price is trending below 200 moving average.


• 26 moving average is above both 14 and 6 moving averages.


• 14 may or may not be above 6 moving average; it is no problem.


• Wait for the price to move to touch 14 moving average and as it happens, go to your broker and place a put trade with expiration of 15-20 minutes.

Figure 05: When to sell

Note: Avoid trading 30 minutes before and after an important news release.

Money Management and Discipline

Without money management, any trading system will fail even though you have 95% success system to trade. So I regard money management and discipline as much more important than a system itself, I can say ANY SYSTEM. Following what I tell you here will set yourself to be a successful trader and as you master it, you will find it a real professional trading attitude yourself. What is a discipline? According to the right definition, discipline is about forcing yourself to do something you don’t like to do. So even you meet emotional pain during the time of trading, you need to follow the rule and plan very strictly. Remember obeying the discipline is more important than making profits in terms of trading. Here it goes:

My money management is about minimizing the spent time for trading, maximizing profits, and minimizing losses. Your total capital is 100% and your single trade amount is 5% of the total capital; so you may calculate to any amount of your capital in your broker.

• Daily loss limit per day: 10% (When you reach that, stop trading for the day.)


• If the first trade (5%) is a winner, you will put together your initial trade amount with the profit gained from the first trade and then stake it for the second trade. The third trade will be your normal 5% amount of capital.


• When you finish the cycle with three wins in a row, call it a day and go out enjoying life.


• If you lose your 5% for the first cycle, start another cycle with 5%; if the two cycles end in losses, you have lost 10% already. Consequently, you have reached the daily limit. It is time to stop trading for the day.


• In case the first two trades are winners, and the third is a loser, stop trading for the day as well. This has locked some profits already.


• Following this plan and with our rainbow strategy described above will make your account grow steadily. You may see three wins often; your account will grow fast in this case.


• I’d like to clarify about the 5% case. For example, you have started with 1000$ so your one trade is 50$ (5%). In this case, you keep staking 5% all the way until you reach 2000$ (100% account growth); then you can raise your 5% to 100$. If you are at 1500$, don’t take 5% (75$ for that capital) to trade. Wait until you reach 2000$.

I hope you enjoy this strategy and keep practicing at your own favor. Remember if you want to be successful in binary options, you have to follow my rules because if you modify anything in it, it will be out of my scope and I have no idea about your experience in trading. If you are a beginner, you can follow these rules to the T. Then it will help quicken your way to be a profitable trader. One more important thing is you need to practice first before going live in real account.

If you need a broker with a very flexible expiration time, you can choose binary.com. I have written a good review about this broker too. Click here to read binary.com review. I have been using binary.com for over 3 years now and it is the best broker according to my experience.

Disclaimer: All above information is for educational purposes only. It is not deemed an investment advice. Our website is not responsible for any damage resulted from our information. Trading financial markets involve highly inherent risk and may not be suitable for everyone. Invest money you can afford to lose.