What is zig zag indicator ?

Zig Zag indicator is a type of technical indicator that is already available in MetaTrader4 software. Although it looks simple, this indicator can be used as a medium to analyze price movements in the forex market. The Zig Zag indicator can be used to filter for relatively small price movements. You can set the deviation as a percentage to ignore smaller moves. This indicator will only draw a line if the relative movement of the price is greater than a predetermined deviation, therefore it will clarify the chart by removing noise from the market and ignoring sideway movements. This indicator does not generate signals automatically. Traders can use it singly to visualize the current trend or in conjunction with other analytical techniques such as Elliott Waves. Support and Resistance and price motives such as Double Top or Parallel Channel.

Please note !!! that each leg up will always be followed by a foot down and vice versa. The Zig Zag indicator is similar to moving age: they both signal a change in trend when the indicator changes direction. Whether used alone or in combination with other techniques, the Zig Zag indicator is a useful tool in the technical trader's toolbox.

The Zigzag indicator plots the points on the chart each time the price rotates by a larger percentage of the predetermined variable. A straight line will be drawn, to connect these points. The Zigzag indicator can be used to help traders identify price trends. This indicator can eliminate random price fluctuations as well as attempt to display a trend change. A zigzag line will only appear when there is a price change between a swing high and a swing low that is greater than the specified percentage; generally 5%. By filtering out minor price movements, this indicator makes trends easier to spot across time frames.

What Data Can You Have From the Zigzag Pattern?

The Zigzag Pattern is often used in conjunction with Elliot Wave Theory to determine the position of each wave in its cycle in totality. Traders can experiment with different percentage settings to see which gives the best results. For example, a 3% setting can ensure clearer waves than a 5% setting. Stocks have their own pattern, so it's possible that traders need to maximize the Zigzag Indicator percentage setting to match the stock.

Although the Zigzag Pattern cannot predict future trends, it can help to identify potential Support and Resistance zones between interpreted swing highs and swing lows. The Zigzag line can also depict a reversal pattern, namely the Double Bottom and the Head and Shoulder Top. Traders can use well-known technical indicators such as the Relative Strength Index (RSI) and the Stochastic Oscillator to confirm the overbought or oversold of a stock price when the Zigzag line changes direction.

Momentum investors may use this indicator to keep holding positions until the Zigzag line confirms in the opposite direction. For example, if investors have long positions, they will not sell them until the Zigzag indicator goes down.

ZigZag Pattern- Price Entry

After the temporary lows or highs are identified, traders can choose to open trading positions based on trend patterns, such as 1-2-3 patterns. 1-2- 3 Zigzag Pattern is the end, correction, retest, and rebound. The Zigzag Pattern is usually formed at the end of a trend and a swing (is an indication of a trend change). These markers can also be found in ranging markets, or occur when the momentum of the trend is down. By using Zigzag Markers, you can identify them easily.

Harmonic Pattern

In the 2 examples given below, we can see how the Zigzag Indicator does not repaint and helps traders to create a harmonic pattern ratio. However, a common problem with using the Zigzag Indicator to draw a harmonic pattern is that the last line of the harmonic pattern might want to be repainted.

AB=CD Pattern

The AB=CD Pattern is a 4-point structure in which the initial price segment partially retraces and is followed by the same movement when the pullback ends. In the classic AB=CD Pattern, BC is the 61. 8% - 78. 6% retracement of AB, and CD is the 127. 2% - 161.8% extension. To illustrate the ABCD Pattern and Bat Pattern into a chart, you can use the Zigzag indicator.

If you think this is not clearly enough you can visit the tutorial video below !

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