The Zig Zag Indicator is a series of trendlines that connect significant tops and bottoms on a price chart. The Minimum Price Change parameter specifies the percentage that the price must move in order to form a new zig or zag leg.
How is the ZigZag indicator work?
The main purpose of ZigZag is to filter out small and misleading price movements to focus on important swings and trends. ZigZag determines the most significant highs and lows of the price and connects them with straight lines ignoring small fluctuations.
ZigZag is not trying to forecast the future price; it only helps to make sense of the past moves of the market. Still, some predictions may take place when combined with other price patterns and indicators.
How to use ZigZag indicator in Trading?
ZigZag also makes it easier to identify trends. Higher highs and higher lows mean that there’s an uptrend, while lower highs and lower lows are typical for a downtrend. If you use a trend-following strategy, ZigZag won’t provide you with entry signals, but it will help you decide which signals you are looking for – to buy in an uptrend or to sell in a downtrend. It will also help to find a place for Stop Loss.
