The Zigzag Indicator series is a technical analysis tool that is used to filter relatively small price movements. The tool is designed to give important highlights of trends and confirm price reversals. A trader sets a deviation as a percentage where the indicator will only draw a line when the change is bigger than the set deviation. Therefore, Zigzag Indicator eliminates unnecessary price noise that has no significance to the trader analysis.
The zigzag indicator has the following settings:
• Depth
• Deviation
• Back step
Calculation of zigzag indicator
• Chose where to begin in the chart
• Decide on the % movement to pick
• Pick the next swing high or low that differs from the starting point
• Connect the trend line from start to the new point
• Identify another swing high or low different from the new point
• Draw the trend line
What does Zigzag Indicator tell you
The indicator is used together with Elliot Wave Theory to give each wave a position in the cycle. Traders can, therefore, conduct experiments using various percentages for the best results. Understanding that markets have unique patterns, traders need to optimize the Zigzag Indicator to be compatible with the securities.
In zigzag calculations, it uses swing high and swing lows.
• Swing high: when the price is higher than the previous and the one after.
• Swing low: when the price is lower than the preceding and the one after.
How Zigzag Indicator is Used
The Zigzag indicator can be compared with a moving average because it shows a signal when there is a change in the indicator’s direction, as the case with the moving average. However, Zigzag Indicator highlights the highs and lows whenever they occur, whereas the moving average has a slow response to price changes.
The Zigzag Indicator tool is useful when:
• Identifying classic charting patterns
• Effective in visually reducing noise
• A trader wants to see larger picture patterns and general market direction.
Take away
• Lowers noise levels, indicating underlying trends higher and lower.
• Works best in markets that are strongly trending.
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