Repainting indicators are essentially indicators which provide different outcomes depending on different time related factors. This means that when an indicator signifies a certain value at a certain period (bar) in time, that value for that specific bar will not be the same as the chart progresses or the indicator is applied to more recent data. Because of this, repainting indicators often show what would be a very best case scenario and when coupled with trade trigger signals or marketing media – these repainting indicators now appear to be the holy grail of trading signals.
Why this is such a problem is that many traders do not know they exist or what a repainting indicator is. When showcased these amazing best case scenarios and purchase these systems with repainting indicators, several things happen.
- The trader loses money from the system purchase
- The trader loses money from the poor trades the system suggests
- The trader loses faith in other systems
Bottom line, the trader loses while the vendor of the system laughs at the naivety.
Often times repainting signal generating indicators will appear to be too good to be true in which case it is more reliant on the trader to do their due diligence when analyzing such a system. For these however, it sometimes takes a bit more sleuthing. Here are some tricks to see if and how an indicator is repainting.
Some indicators are designed to repaint
The best example of a repainting indicator is the commong ZigZag indicator which calculates highs and lows based on deviations in price. This tool is fantastic for identifying trends, breakouts and support/resistance levels however it cannot and will not be a good signal for entry and exit conditions.
Here is an example of where a ZigZag indicator would repaint.
On paper, the ZigZag indicator would hit a homerun when looking at historical data however as the chart progresses, it continues to expand its range when the price continues to hit higher highs and lower lows. When can one expect to hit the top or bottom to make a trade when it keeps moving? By the time the next opposing line forms, the trade opportunity is gone.
This isn’t a problem however, when you understand how this indicator works and use it as it was designed for – repainting is not an issue – only when there are hindsight claims for actionable trade signals.
Nearly every indicator will repaint on the current forming bar
One of the most important factors to understand is that indicators will continue to move around and values will change throughout the formation of the current bar. Not only until the bar closes is a non-repainting indicator’s value “set in stone” and can become an actionable signal. It is generally considered best practice to not trade based on an indicator until the bar has closed and the next bar opens.
Here is an example of a Forex trading system which likes to stretch the truth and continue to promote a terribly unprofitable trading system to unsuspecting traders.
Right here the buy and sell signals look great, buy with the up arrows and sell with the down arrows – simple, profitable, right? Far from it. Not only are these signals not actionable at least on the current bar, they are deceptively placed. If you were to follow the buy and sell signals completely, here are the trades that you would have made.
Now the profitable trades are gone and the substantial winner is now hardly profitable at all. This “251” pips now lost you money.
The problem here is that this is not an uncommon claim and so many fall victim to the flashy guaranteed win systems. Wake up people! How can you expect to take a trade on signals before they have even formed?
Do your research with a system and understand how they work and when a trade signal is actionable and when it is not. Good trade signal systems exist however they are commonly overshadowed by overzealous and overhyped claims of profitability.