How does it work and why do traders use the Rainbow Chart system for Bitcoin

Let’s start with the simplest: 彩虹图表 Bitcoin — is a visual tool that shows long-term price cycles through a system of color bands. Currently, BTC is trading at $87.12K (down 1.01% over the past 24 hours), and understanding this tool can help better navigate market cycles.

From history: how the color band system was developed

The idea to apply rainbow charts to Bitcoin analysis emerged in 2014 thanks to Reddit user “azop.” Initially, it was an experimental logarithmic chart with simple color ranges.

A real breakthrough occurred in 2019 when analyst Rohmeo redesigned the model and created version V2. This iteration gained the characteristic “rainbow” shape and an improved mathematical foundation. Today, 彩虹图表 systems are available on BlockchainCenter, TradingView, and other platforms.

How it works: nine colors — nine market states

The system is based on logarithmic regression, which smooths out volatility and reveals long-term trends. Each price range corresponds to a specific color:

Undervalued zones (cool colors):

• Dark blue: critical sell-off, extreme undervaluation
• Light blue: strong undervaluation, buy signal
• Green: accumulation, attractive price
• Light green: slight undervaluation

Neutral zone:

• Yellow: fair value, balanced market

Overvaluation zones (warm colors):

• Orange: possible overheating, rising enthusiasm
• Light red: FOMO territory, likely overvaluation
• Red: clear overvaluation, correction risk
• Dark red: extreme bubble

How to apply the chart in practice

Step 1: Determine current position Zoom in on the chart and identify which color band the current BTC price falls into. This takes just a few seconds.

Step 2: Analyze historical cycles Next, look at how Bitcoin behaved when in a similar range before. This helps identify recurring patterns and understand typical asset behavior at each cycle stage.

Step 3: Combine with other tools Rainbow charts are most effective when used alongside trading volume, RSI, MACD, and the Stock-to-Flow (S2F) model. This multi-tool approach significantly improves analysis quality.

Relationship with Bitcoin halving

Halving events (block reward reduction by half) occur every four years and drastically influence dynamics. On 彩虹图表, a pattern can be observed: around halving times, Bitcoin is usually in the lower, blue or green ranges.

This indicates undervaluation by historical standards. After halving, as supply decreases and demand grows, the price often rises into higher ranges, reflecting a shift from undervaluation to fair or even overvalued levels during the next cycle.

Real advantages of the tool

Visual clarity: The color system allows instant understanding of overall market sentiment without complex calculations.

Historical context: The chart shows how Bitcoin’s price has evolved, providing a broad time horizon.

Educational value: The tool helps learn market cycle patterns and the behavior of the largest crypto asset at different stages.

Support for strategy: When integrated into comprehensive analysis, it strengthens trading decisions and long-term planning.

Where simplicity and risk lie

Rainbow charts are based on historical data, so past trends do not guarantee future results. Black swan events, global developments, or new regulations can disrupt historical patterns.

Color boundaries lack strict mathematical binding — different analysts may use slightly different parameters, leading to varied interpretations of the same price level.

The chart smooths out short-term volatility, making it unsuitable for scalping or day trading. It is strictly a long-term analytical tool.

As the Bitcoin market matures, historical models may require adjustments. What worked in 2015 might give different signals in 2025.

Frequently asked questions

How accurate is the forecast based on the chart?
Rainbow charts are a guide, not a crystal ball. Use them as part of a comprehensive analysis alongside other technical indicators.

Is it suitable for short-term trading?
No. The tool is designed for long-term planning and does not reflect short-term price movements.

How does halving influence chart signals?
Historically, Bitcoin tends to be lower on the chart before halving and rises afterward. This adds useful context to cycle analysis.

Is one chart enough for trading?
No. Combine it with volume, technical indicators, and fundamental analysis for balanced decisions.

Main takeaway

The 彩虹图表 system for Bitcoin is a convenient visual tool for long-term price cycles. It helps beginners quickly gauge market sentiment and provides experienced traders with additional context. However, it is not a panacea: use the chart as part of a broader toolkit, constantly verify signals with other methods, and be prepared for unexpected market events.