What is the model number on the hub shell? is it something like XRF5, and if so, is there a w after the number?
The w is the wide range model, and the indicator with the blue mark is for use with the short guide nut only. If you have the standard guide nut, or the roller in place of it, you require the indicator with a yellow mark. Adjusting to the mark on the wrong indicator would lead to poor functioning.