Basic tool of forex technical analysis, that helps us to anticipate trend reversals and filter out most of market noise. It is also useful in determining support and resistance zones on the market. ZigZag may also extremely important in forex strategies that need to establish the latest swings up or down.
Anatomy of ZigZag forex indicator
Depth setting: 15 new line is drawn only after 15 percent correction
ZigZag is mainly a tool of filtering out a market noise. If we preset it to 15 percent (depth settings), it will disregard all price movements under 15 percent of current swing. Using zigzag can therefore enable trader to concentrate on price without putting too much attention on short term fluctuations of price.
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ZigZag is based on chart readings and it uses candle close for its calculations. By choosing ZigZag setting we can manipulate its signal sensitivity.
Depth setting: 40 new line is drawn only after 40 percent correction
Depth value will filter out all price movements smaller than our chosen value. For example with Depth value: 5, indicator will filter out all price movements under 5 percent. Previous swing is therefore measured from low to high (high to low). All corrections above 5 percent will start a new ZigZag swing. Indicators swing leg is fully closed only after 5+ percent price correction.
Depth setting: 5 new line is drawn only after 5 percent correction
Using ZigZag forex indicator
It is very important to be aware, that ZigZag doesn't hold any predictive capacity on its own. All its uses are based on ZigZag being used with Elliot waves structure, chart formation recognition and other tools of technical analysis.
ZigZag forex strategy