Many forex traders make use of technical indicators to guide them in predicting and making the right trading decisions. But in some cases, a good number of these traders end up using indicators that instead mislead them.
This article focus is on repainting indicators. The concept of repainting has been used by a number of scammers. Repainting makes indicators so appealing when assessed on historical charts but not the case in real time trading. To break it down we differentiate between repainting and non-repainting indicators.
What is a repainting indicator?
Repainting indicator is an indicator that keeps changing its values. Repainting indicators always use future data (bars to the right) to come up with values and entry signals. This is how repainting indicators make sure their historical entry and exit signals look extremely accurate and flawless.
What is a non-repainting indicator?
Unlike repainting indicators, non-repainting indicators never change their values on the closed bars. Each closed bar has its open, close, high and low levels which never change whenever a bar has closed. An indicator value too should not change as long as they are based on closed bars.
Difference between repainting and non-repainting indicators
In the picture below, the indicator recalculates its value based on the current price. In normal practice, you will find such an indicator constantly firing false signals that do not reflect on your historical chart. For example, the indicator might give 5 signals, where 3 of them are wrong and disappear later on, leaving the trader with only 2 entry signals on the chart.
In this illustration, we see a BUY entry signal and a trade already open. Now, look at the next picture, where it is clearly seen this BUY signal got disappeared a few bars later.
As you can see, the trader closed the disappeared BUY signal with a loss. The signal is not even visible on the chart, this MT4 repainting indicator just fooled the trader.
But after all, repainting is not a bad concept, this will become clear as we move on.
For example, the moving average values of the current price bar will keep adjusting as price changes, but once the bar closes, the moving average will stop changing for that closed bar. This whole idea is not selective on the type of price indicator, whether leading or lagging indicator. This indicator will usually become static whenever a price bar closes, this will prevent any other formation or any deviation of the indicator after the price close.
Good and bad repainting indicators
As indicated earlier in this article, not all repainting indicators are bad. There are good and bad repainting indicators. Some good indicators such as the zigzag and fractals are not meant to fool users. All a trader needs to do is to learn how to use them. Fractals and zigzag help traders identify specific patterns, therefore, they keep changing as price changes. Remember, you can’t force a pattern to form; the indicator has to follow the prices until the pattern forms.
Fractals – a good repainting indicator
In the case of fractals up and fractals down, some signals may disappear, which is totally okay. Fractals are normally formed of five bars. For fractals up, the highest bar will normally fall in the middle, as two bars on both sides form lower highs around the middle bar.
For fractals down, the lowest bar will fall in the middle while the successively two higher low bars will form on both sides. The fractal sign appears as the last two bars are forming, in some cases, the fourth or the fifth bar may go up above or down below the middle bar ruining the chances of a Fractal Up and Fractal Down forming successively. In this case, the indicator sign disappears, but it doesn’t mean it’s a bad repainting indicator. It only means the fractal did not form. Once this pattern of five bars is successfully formed, and the fifth bar closes, the signal will not disappear. Fractal is a good indicator which records high success rate only when traders know how it works.
ZigZag – another good repainting indicator
In the case of a ZigZag indicator, the indicator keeps repainting, and that is how it was created to do. The ZigZag indicator is used to predict when a certain security’s or stock’s momentum is about to reverse. As it shows the highs, lows, swings and waves, new highs or lows will be formed, this indicator will adjust accordingly to reflect the change. In this case, the indicator moves in the way of prices.
How to check indicator repainting
There are a number of ways traders can do to verify if the indicator they are using is repainting or not. The use of the MetaTrader strategy tester is one of the most recommended ones. From the MetaTrader platform, you can easily access the strategy tester from the top menu. Fill in the parameters such as the indicator to be tested, period and the date range. With the appropriate speed, the user can successfully test their indicators. You can mark and take screenshots to compare the before and after charts.
It is recommended that when doing the testing, lower time frame should be used. When one uses lower time frame, you are able to obtain results faster. At the same time, the testing should be carried out at the right speed, not too fast to miss some details and again not too slow as one may lose focus. The MetaTrader has a meter that will help users adjust to the right speed for them.
First and foremost, it is necessary to take caution when dealing with these indicators. Where the creator of a repainting indicator does not mention to the users that the indicator is repainting, chances are high it is a bad indicator and users are likely to be fooled. An honest creator of an indicator should disclose to the users all material facts of the indicator.
Non-repainting indicators in real life are less problematic. Though most of them have a lagging tendency, they are highly valued as the information they provide doesn’t change. Looking at the historical charts of such an indicator may not be that appealing, but their reliability coupled with their ability to be used alongside other indicators makes them more dependable. Many traders find it extremely frustrating to use repainting indicators. The historical results from these indicators are excellent, and at some point, traders may think they have just hit the “holy grail” only to realize in real time the results are far from what they saw earlier.