To work in the financial markets, experts and trading professionals have developed a wide variety of trading tools. Many traders select individual settings in the classic types of indicators, and some independently develop unique algorithms or order them from specialists. Especially popular among speculators, investors and analysts is the Zigzag technical indicator, which will be discussed in this article.
Description of the ZigZag Tool
To earn money in the financial market, each trader at the beginning of the working day conducts an analytical forecast of market movement. To identify the direction of quotes, speculators and experts use a wide variety of indicators, resistance and support lines, graphical figures and much more.
In order to understand which way to open a position, many traders use the ZigZag indicator in their work. The description of this instrument will not take much time, since it looks like a broken line, which indicates the maximum and minimum values of market quotes on the chart. Knowing the parameters of the extremes and their location, speculators apply special trading strategies for rebound or breakdown.
Indicator setting
Before you install this tool on a chart, you must select the working parameters for it. Setting the ZigZag indicator is quite simple and has only 3 parameters: Deviation, Depth, Backstep. With their help, the trader has the opportunity to adjust the sensitivity of the instrument to various market noises and price fluctuations.
Forex Settings of the Zigzag Indicator:
- Deviation is the main function of the tool, which is calculated as a percentage. The default value is 5%, but it can be changed if necessary, so it is the minimum parameter and shows the degree of kink of the line.
- Depth - determines the number of candles to be used in market analysis. Its default default value is 12.
- Backstep - the minimum value for determining the distance between the candles. The default is 3. This parameter indicates how many bars / candles will be used between the breaks of quotes.
Professionals advise beginners to use the standard settings and not change their values. For greater sensitivity of price breaks, you can choose other parameters, and then these indicators will increase and will reflect additional changes in market movements on the chart.
Tool Features
The Forex ZigZag indicator is an auxiliary tool for trading that is used in many trading strategies and market quotes analysis. Because of its simplicity, even beginners can use it in trading.
The indicator perfectly shows the extremes of market prices and pivot points. It can be used in working with standard settings, that is, without any additional parameters. The features of the Zigzag indicator can also include the fact that it does not need to be downloaded from anywhere and it is in the tools on all popular trading platforms.
Indicator Benefits
The advantages of the ZigZag tool include the ease of its use in work and the rapid finding of the direction of the trend. With its help, during the analysis of forecasting market movements, it is possible to cut off flat areas, interference and noise. The positive characteristics can also include the fact that it can be used on any timeframes.
In addition, the ZigZag indicator is compatible with any trading systems and trading tools. It does not clutter the chart at all and does not interfere during the analytical forecast.
Disadvantages of the Zigzag
Unfortunately, in trading there are no absolutely perfect tools, and Zigzag is no exception. It has two main drawbacks - redrawing market quotes and lag provided that its standard versions are used.
The concept of "lag" on the "Forex" means that the instrument will follow the market price, but with some delay in real time. As a result, the Zigzag indicator processes only historical data, without looking into the future and without forecasting changes in quotes. Most trading tools have these properties, for example, Moving Averages, Stochastic, Parabolic, and other technical indicators.
As for the redrawing, it should be noted that the Zigzag on the chart will be displayed as a broken line and follow the market price, drawing new extremes. With the following quotes, it will also change the previously drawn line. Such a property of it follows from the delay, since it cannot predict changes in the future tense, but only displays historical data. Therefore, ZigZag refers to auxiliary tools that allow you to quickly determine the global trend fairly quickly, without any effort.
It should be added that the experts developed modified versions of the ZigZag indicator without redrawing market quotes. Such tool options either completely eliminate this drawback, or they are displayed to the least extent.
Work algorithm
To understand how the ZigZag indicator works, you need to know its features. This tool independently, in automatic mode, determines the maximum and minimum values of market quotes on the chart and draws a line along them.
The essence of the “Zigzag” is as follows - it analyzes a certain number of candles specified in its settings or by default, that is, their opening and closing indicators. As a result of calculations, he fixes the values of each candle, and ultimately a line is formed. The trader sees on the chart ready-made indicator indicators. In the future, he uses these values in the analytical forecast or in trading in the financial market.
The use of the ZigZag indicator in trading
In practical trading, in contrast to the analytical forecast, the indicator is used in different ways. This article will cover the most common uses for the ZigZag.
Methods of using the indicator in trading:
- Definition on the level chart. The stronger these indicators are, and the more accurate the signals from the ZigZag will be on them, the greater the chances for traders to earn money. Important price levels, such as support and resistance, are used in various trading strategies, as well as in the forecast. They are carried out on breaks in indicator indicators, the upper line is resistance, the lower line is support. In MetaTrader there is a special tool called the "horizontal line" with its help they just carry out such levels.
- Construction of lines of impulses and trends. Using the ZigZag indicator, this can be done very quickly. It is enough to set the instrument on the chart, it will draw the line in automatic mode, and the trader will be able to determine which trend is occurring in the market.
- Designation of reversal patterns or continuation of the impulse. Using the indicator, you can determine the graphic patterns that allow you to understand the immediate prospects for market movement.
- Zigzag indicator and Fibonacci levels. Sometimes in trading there are situations when, after installing Fibo on the chart, it is impossible to determine where you need to draw the “grid”. To build, the Zigzag will help, which will indicate the desired extremum for the Fibonacci levels.
Indicator signals
As mentioned above, with the help of ZigZag you can find candlestick patterns and figures on the chart. Consider the most common options that most often appear on the charts:
- Graphic figure "Head and shoulders". Beginners can’t always quickly determine, but at Forex this is very important, a market reversal and a change in trend. With the help of an indicator that indicates lines along the extremes, this task is greatly facilitated. The characteristic of the “Head and Shoulders” figure is the extreme indicated on the graph, followed by the larger peak, which the Zigzag also finds, and the third smaller peak.
- Graphic figure "Double Peak". On the chart, it looks like two extremes that the Zigzag indicator draws.
- Double bottom shape. By and large, this is an inverted Double Peak.
And also on the chart quite often appear “Triple top” and “Triple bottom”. In total there are several dozens of different graphic shapes, but these options are easiest to determine using ZigZag.
In addition, the signals that are indicated using this tool can be based on candlestick patterns, for example, “Pin-bar” that appears at the peaks of market quotes. Or in conjunction with the Fibonacci levels, when the indicator draws rebounds from the Fibo levels at values 38.2, 50, 61.8. It is very convenient for traders, especially beginners, as the confusion about how to trade disappears. The Zigzag indicator eliminates the emerging subjective approach of the trader in his analysis of the market.
Zigzag Trading Tools
Modified versions developed by experts on the basis of Zigzag significantly reduce or completely eliminate its most important drawback - redrawing market quotes. There are several effective tools for trading:
- Gann Zigzag indicator. It is based on the algorithms of 2 tools - ZigZag and Gann Fan, or in some modifications the "grid" is used. This option allows you to more accurately filter out false signals and open positions with a higher probability of earning at the Forex.
- ZigZagger 2.0 indicator. This tool has a built-in sound alert function, and it indicates the signals for opening orders on the chart using the arrow, taking into account the direction. This indicator is not redrawn, but is also not a Grail for opening positions, since the signal can change its values. Therefore, it is recommended that any version of indicators based on the ZigZag, even a modified one, be used with other tools.
- ZigZag triad. It allows you to automatically build support and resistance levels. Its feature is that, while working on ZigZag algorithms, it does not designate levels in the usual form, like lines, but displays them on a graph in the form of dots. It is used by traders as a convenient way to place protective orders, and is also used in trading strategies for the breakdown of support or resistance.
Trading Strategies with ZigZag
The simplest techniques that beginners can use is to work with strategies to hang up from levels or their breakdown. For trading, you will need to install only two technical indicators on the chart: ZigZag and moving averages with a period of 14, which will indicate the direction of movement of quotes.
The essence of working on strategies with the ZigZag indicator:
- On the bends of the broken lines of the tool to select the area of a turn or rebound.
- Using pending orders, set a buy or sell position, depending on the market situation.
When the market is in a calm state, then trading takes place in the lateral range from resistance to support and vice versa. During trends, you can work on a rebound from levels when the market reaches maximum / minimum values, or according to a trend, for a breakdown.
Predicting changes in market quotes with the Zigzag
For effective trading, the Zigzag tool must be used in combination with other types of indicators or graphical constructions. In the analytical forecast of market movement, it is used with the following technical indicators:
- MASD.
- "Parabolic."
- Stochastic.
- Moving Averages.
- "Alligator".
- Relative Strength Index and other types.
In addition, it can be used as confirmation in a candlestick analysis of the market, with Fibonacci levels, Gann fan, Bollinger bands, as well as build resistance and support levels based on the Zigzag indicator.
Conclusion
ZigZag is a great assistant for the trader, allowing you to quickly analyze the market condition. With its proper application, you can get stable positive results in trading.