Among forex traders, few topics stir more heated debate than the prevalence of so-called “repainting indicators” widely available in trading platforms and analytic tools. Opinions sharply divide over such indicators. Are they deceptive tricks to be avoided entirely? Or if used properly, can they still offer trading value despite their imperfections?

Functionally, repainting refers to indicators that change plotted historical values or even shift signals on older bars of price charts retroactively. This directly contrasts non-repainting indicators that stick to fixed calculated values over time. As a result, repainting poses notable risks for trader strategy development and execution. In fact, certain jurisdictions ban aggressively repainting technical indicators.

And yet, global forex markets teem with commonly utilized indicators exhibiting some degree of repainting behavior. Their flexibility provides visualization and analytic benefits that when paired with prudent trading practices helpful guidance emerges. Ultimately, understanding what drives repainting and acknowledging inherent limitations allows leveraging these tools responsibly.

Defining Repainting Indicators in Forex

At the simplest level, repainting indicators recalculate and overwrite historical data rather than just outputting new values on recent price bars. They optimize based on future data not yet available at the time. Values, signals, and plotted trends literally get repainted backwards as if they knew what would happen.

For example, a simple moving average calculated on May 5th data suddenly shifts on May 3rd and prior days when the indicator runs again after May 10th. Or a momentum oscillator like the Relative Strength Index showing overbought may quickly switch to oversold retroactively due to the new inputs.

When backtested or run in strategy builders, such revisions severely distort accuracy. Strictly speaking, true repainting renders historical values unreliable for making trading rules or backtesting. The future should not determine the past in principle!

Common Repainting Indicators in Forex Of the variety of technical indicators favored by currency traders, surprisingly many of the most referenced happen to repaint to some degree. These include:

  • Momentum Oscillators: Stochastic, RSI
  • Overbought/Oversold bands
  • Moving Averages: ZigZag, Alligator, Fractals
  • Custom indicators programmed from future data

The repainting stems from math formulas that incorporate recent price actions or dynamically shift with evolving values. No definitive history records prior readings before recalculation. As today’s move may reverse tomorrow’s outlook, plotted trends and signal lines adjust retrospectively.

Dangers Repainting Poses for Forex Traders

Aside from conflicting with trading best practices and technical purity standards, repainting proves problematic in real world usage:

  • Generates False Signals: Values and signals misleading traders before morphing differently in hindsight. Unreliable signals multiply losses.
  • Backtesting Inaccuracy: Strategy testing and optimization based on shifting historical signals produces unrealistic expectations. Performance will suffer executing a system not mimicking the backtest.
  • Difficult Strategy Adherence: Hard adhering to a trading plan if indicator values are constantly revising prior signals that aligned with the trades made at the time. Should rules themselves shift?

Smart traders run tests to check favorite indicators for repainting before adoption. If historical values change prior to recent price bars, the tool exhibits repainting. This matters when structuring rules for engagements.

Functional Usage of Repainting Indicators

While repainting fails purity standards, certain trader types still extract value from these flexible indicators:

  1. Visualization Usage: Morphing historical ticks aids visualization of dynamic levels and flowing price waves that stationary data poorly conveys. The aesthetic value remains regardless of precision.
  2. Probability Signals: Repainting indicators still afford gauging likely scenarios and momentum even as concrete signal precision proves lacking. A sense of building pressure has merits.
  3. Combining Indicators: Layer lagging indicators like pivot points or trend lines atop adaptable tools for greater reliability. Marry technicals with fundamentals as well.
  4. Rule Flexibility: Discretionary traders adapt better to updated indicator values rather than using rigid system rules. However, this opens subjective judgement issues.

When incorporating repainting indicators, traders ought to remain cognizant of limitations by avoiding over-optimization and acknowledging trend probabilities rather than concrete predictive certainty.

Key Takeaways on Repainting Indicator Usage:

● Visual aid more so than timing trigger ● Gauges potential momentum scenario
● Combine with price action and lagging indicators ● Factor repainting into backtest assumptions

Are All Indicators Equal Regarding Repainting?

In actuality, significant variety exists across so-called repainting indicators. Some commit extreme retroactive historical revisions while others feature more subtle real-time value creeping. Consider:

ZigZag Indicators: Plotted highs and lows frequently change on older bars adjusting sensitivity levels. Severely repaints with hindsight bias.

Momentum Indicators: Oscillators like RSI or stochastics update historical readings mildly with new price inputs. Signals see minor real-time drift.

Fractals: Definitive trend reversal patterns sticker marked on historical charts update with additional bars filling space. Alters prior signals.

Lagging Moving Averages: SMA and EMA values do gradually shift dynamic period parameters but focus on confirming trends rather than predicting reversals reduces inaccuracy risk.

Not all repainting poses equal deception! But distinguishing the degree by indicator and function remains critical for practitioners seeking genuine trading advantages not technological tricks.

Conclusion: Don’t Blindly Avoid or Trust Repainting Indicators

When evaluating forex trading indicators, intelligent practitioners neither blindly avoid ones labeled as repainting nor blindly trust signals they generate. Rather, understanding the practical implications of refreshed historical values and probability based signals allows selectively incorporating such tools responsibly.

For shorter term traders, comparisons against lagging indicators with fixed values and attention to real-time price levels protects against misleading signals. But when viewed as analytic visualizations of unfolding momentum, repainting tools empower discretionary traders to capture moves backed by sufficient probabilistic weight rather than hoping a rigid system obeys static rules.

At minimum, this nuanced contextual understanding allows navigating popular repainting indicators prevalent in forex analysis platforms rather than simply writing off bells and whistles marketers push as magic trading solutions. However, traders tackle these tools, the maxim to know thy indicators proves ever wise. What may first appear devious often plays an interpretive role once the reality is acknowledged rather than assumed away.