Many indicators are valued for their predictive properties and ability to guide traders in making the correct trading decisions. The many hundreds of available indicators, from the most popular to those which have been custom-designed and adapted by individual forex traders rely on a host of varying data in their make-up. Within this, many indicators differ in whether they use either the open, close or mid-price of the current price bar in order to provide traders with the latest information. This key difference causes the difference between those indicators which can be considered ‘re-painting’ and those which don’t re-paint.
Why are re-painting and non re-painting indicators different?
Re-painting occurs when the indicator relies on the closing value of the current price bar in order to update accurately. Therefore, whenever a price bar is still open the indicator has the potential to move higher or lower until the close is confirmed. Non-repainting indicators, on the other hand, are usually based on the data provided through the opening of the current price bar. Once the bar has opened, the indicator will remain fixed until the next open.
Using re-painting indicators with caution
Many forex traders find that re-painting indicators can be highly frustrating due to the fact that they very rarely show an accurate interpretation of the current situation, but will still look excellent when back-tested. In fact, many new traders will fall in to the trap of thinking that they january have discovered the ‘holy grail’ of indicators before realising that its performance in real-time is far from its impressive performance during a thorough backtest.
How forex trades can be affected by re-painting and non re-painting indicators
A classic example of a re-painting indicator, but one which can still be extremely useful, is a ‘fast’ moving average. By fast we mean those which are based on a short number of bars and on a low timeframe (for example the 10MA on the 5M timeframe). For forex traders looking for MA crossovers in order to enter trades the smooth and highly accurate historical view of the 10MA look like an excellent trading strategy. However, watching the tail of the MA moving higher and lower, perhaps even crossing a larger MA several times before its close, make it incredibly difficult and actually quite inaccurate to trade on its own. Similarly, indicators such as the ‘Zigzag’ and ‘Centre of Gravity’ indicators are also notorious for repainting and should not necessarily be avoided but simply used with caution.
These are seen as less problematic in real-time trading as far as non-repainting indicators are concerned, but they tend to lag behind the current price action. However, these are far more highly valued than their repainting counterparts purely because once they have been formed, the information and signals they show do not change. For forex traders looking for the perfect indicator, their historical value may not be quite so impressive, but their reliability and potential to be mixed with other reliable indicators make them far less risky in terms of providing accurate trading signals.
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