The Zig Zag indicator plot points on a chart whenever prices reverse by a percentage greater than a pre-chosen variable. An analyst can set the percentage level to trigger the indicator. Straight lines are then drawn, connecting these points.
The indicator is used to help identify price trends. It eliminates random price fluctuations and attempts to show trend changes. Zig Zag lines only appear when there is a price movement between aswing highand a swing low that is greater than a specified percentage—often 5%. By filtering minor price movements, the indicator makes trends easier tospot in all time frames.
The Zig Zag indicator is often used in conjunction withElliot Wave Theoryto determine the positioning of each wave in the overall cycle. Traders can experiment with different percentage settings to see what gives the best results. For example, a setting of 4% may define waves more clearly than a setting of 5%. Stocks have their own patterns, so it is likely that traders will need to optimize the Zig Zag indicator’s percentage setting to suit those securities.
Although the Zig Zag indicator does not predict future trends, it helps to identify potential support and resistance zonesbetween plotted swing highs and swing lows. Zig Zag lines can also reveal reversal patterns, i.e. double bottoms and head and shoulders tops. Traders can use popular technical indicators such as the relative strength index (RSI) and the stochastics oscillator to confirm whether the price of a security is overbought or oversold when the Zig Zag line changes direction.
Amomentum investormight use the indicator to stay in a trade until the Zig Zag line confirms in the opposite direction. For example, if the investor holds a long position, they would not sell until the Zig Zag line turns downward.
Choose a starting point (swing high or swing low).
Choose % price movement.
Identify next swing high or swing low that differs from the starting point = > % price movement.
Draw trendline from starting point to new point.
Identify next swing high or swing low that differs from the new point = > % price movement.
Draw trendline.
Repeat to most recent swing high or swing low.
Zig Zag Indicator Limitations
Like othertrend-following indicators, buy and sell signals are based on past price history that may not be predictive of future price action. For example, the majority of a trend may have already happened when a Zig Zag line finally appears.
Traders should be aware the most recent Zig Zag line may not be permanent. When price changes direction, the indicator starts to draw a new line. If that line does not reach the indicator’s percentage setting and the price of thesecurityreverses direction,the line is removed and replaced by an extended Zig Zag line in the trend’s original direction.
Given the lag, many traders use the Zig Zag indicator to confirm the direction of the trend rather than attempting to time a perfect entry or exit.
Choose a starting point (swing high or swing low). Choose % price movement. Identify next swing high or swing low that differs from the starting point = > % price movement. Draw trendline from starting point to new point.
A zigzag is a pattern made up of small corners at variable angles, though constant within the zigzag, tracing a path between two parallel lines; it can be described as both jagged and fairly regular.
A zig zag indicator can tell analysts when a security's trend is reversing. The indicator requires a percentage of price movements. The default is usually set at 5%. A zig zag indicator isn't predictive.
ZigZag indicator is typically coupled with other indicators. The indicator is generally used in trends to determine trend direction. Higher highs and higher lows on ZigZag indicator means that the price is moving upwards.Lower highs and lower lows means that the trend direction is downwards.
A zig zag diet, also known as a calorie cycling or calorie shifting diet, is a dietary approach that involves alternating between high-calorie and low-calorie days throughout the week.
The default value on most versions of the indicator is 5%. With that setting, the Zig Zag indicator will not mark any fluctuation in price that is less than 5%. However, you can, of course, set your own minimum percentage values for the indicator. Many traders use values between 5% and 10%.
You will then be able to pick out “ZigZag”. The indicator has 3 parameters. They are depth, deviation, and backstep. Depth is the minimal number of candlesticks which won't be regarded as a top/bottom if a top/bottom was already found using deviation.
The word zigzag describes the shape of a line. A line drawn in a zigzag shape makes a lot of short, sharp turns. The letter Z is a zigzag itself, and a thunderbolt is also often represented as a zigzag. The first turn a zigzag line makes is called a zig, and the second is called the zag.
noun. a rule composed of light strips of wood joined by rivets so as to be foldable, all the opening and closing parts being in parallel planes. Also called: folding rule.
Calculation. The ZigZag is based on the chart “type.” Line and dot charts, which are based on the close, will show the ZigZag based on closing prices. High-Low-Close bars (HLC), Open-High-Low-Close (OHLC) bars and candlesticks, which show the period's high-low range, will show the ZigZag based on this high-low range.
The ZigZag indications only appear when the price movement between a swing high and a swing low is greater than the specified percentage. Since the indicator analyses historical data, it is not a predictive tool on its own.
The approach to, and exit from, a pedestrian crossing is marked with zigzag lines. It also means that you must not park on them or overtake the leading vehicle when approaching the crossing.
The default value on most versions of the indicator is 5%. With that setting, the Zig Zag indicator will not mark any fluctuation in price that is less than 5%. However, you can, of course, set your own minimum percentage values for the indicator. Many traders use values between 5% and 10%.
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