Keep in mind that the higher you set the price change threshold, the less sensitive the indicator becomes. If you set too low of a spot, it results in an ineffective Zig Zag since not enough noise is removed. Too restrictive and you may miss profitable price trend data. The Zig Zag tool is designed to be complementary and should not be the focal point of a forex trading strategy.

It is most commonly used in conjunction with Fibonacci or Elliot Wave trading systems. Swing traders love the Zig Zag because it helps them analyze entries on possible retracements. This should translate into a more consistent application of other trade strategies. Whatever trading strategy you use, keep in mind that the Zig Zag is a lagging indicator , which means that it does not predict anything on its own. The forex market is notoriously fast-paced, so try to complement it with a system that offers leading signals if possible. Like many trading indicators, long-term trend reversals take more time but are shown to be more reliable than indicators that show short timeframes, like those of days, hours, or minutes.

Many traders trade with a variety of tools.

The Zig Zag indicator shows when a trend could be reversing, but the trader will compare that indication against other trading tools they use in order to execute their strategy. Technical Analysis Basic Education. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data.

We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Key Takeaways The Zig Zag indicator is a basic tool used by traders to identify possible trend reversals. The indicator is not the only tool a trader should use to make investment decisions.

When starting a possible trade, the Zig Zag indicator should be the first tool used. Confirmation is then required from other, more precise trading tools. These depend on the individual trader and their overall strategy. The Zig Zag indicator exists in order to apply consistency to trading signals.

How You can Use the Zig Zag Indicator like Professional Traders - DTTW™

The pattern is the bottom, a correction, a retest, and a rebound. The pattern usually occurs at the end of trends and swings i. They can also be found within a trading range, taking place when the directional momentum of a trend is diminishing. By using the ZigZag indicator, you should be able to identify it easily.

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In the two examples given below, we can see how the ZigZag indicator helps traders to find ratios for using harmonic patterns. However, a common issue with using the ZigZag indicator to chart harmonic patterns is that the the last leg of the harmonic pattern might repaint. Many custom indicators use the ZigZag indicator to plot Fibonacci levels.

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Zigzags are usually considered corrective waves, or three-waves structures. Considering the wave structure of Fibonacci, the concept is that Fibonacci levels will have a higher chance of being respected depending on the most likely wave count at the time. The two go hand in hand and reinforce each other very neatly.

How does the Zigzag indicator help us?

Obviously, you can use the Fibs as well with the ZigZag waves when applying them on a candle or a natural swing and it could work perfectly fine. This is an example of how the custom-made Fibonacci indicator uses a default MT4 ZigZag indicator showing Fibonacci levels, arcs, and time zones. The ZigZag indicator is also used within different channel indicators.

Due to its nature, when you combine all of the above-mentioned things, you should have most of the critical information when using the ZigZag indicator with channels. When used for channel drawing, the ZigZag indicator should be able to filter out smaller price movement for you, and you should be able to ignore the noise and see the bigger picture.

Additionally, the ZigZag indicator is able to show different chart patterns, such as the head and the shoulder ; W, M, V-shaped reversals; and many others. That can really be an advantage to beginner traders who still don't know how to define patterns with the naked eye. Another way to use this indicator is to have several ZigZag indicators plotted on your chart by applying multiple deviation parameters. The idea behind such a ZigZag setup is that when a smaller deviation of the indicator is inverse of the larger deviation, that could be a trigger to make your trade in the direction of the larger deviation ZigZag indicator.

See the example below! The blue ZigZag line represents the main trend and the deviation is set to 36, while the red line represents smaller retracements after which the entries were made. The deviation is set to 6.

This is just a theory, but its practical usage can be tested further. Wolfe Waves are a naturally occurring trading pattern present in all financial markets. Albeit there are some differences in charting techniques, as this pattern is composed of five waves showing supply and demand towards an equilibrium price. Wolfe Waves usually develop on all time frames, and are used to predict where the price is heading, and when it might get there. There are a lot of Keltner Channel indicators openly available in the market, and MetaTrader 4 Supreme Edition offers an elite range.

However, with testing various Keltner Channel indicators, it has been acknowledged that there are a lot of different versions of the indicator itself.

Zig Zag Indicator

The idea behind this mini strategy is to sell when the price goes above the channel, and to buy when the price goes below the channel. In both cases, entries should be confirmed with a ZigZag. The ZigZag may appear to some traders to be the Holy Grail of trading, but you have to remember that the last leg wave of the ZigZag might extend as it follows the price.

It is called 're-painting', but it is standard considering the nature of the indicator. Use the indicator to monitor the health of the primary trend, and use it with all the important tools mentioned above. It can be of a great help to traders who actively trade the Forex market and other financial markets. Admiral Markets offers professional traders the ability to significantly enhance their trading experience by boosting the MetaTrader platform with MetaTrader Supreme Edition. Gain access to excellent additional features such as the correlation matrix - which enables you to compare and contrast various currency pairs, together with other fantastic tools, like the Mini Trader window, which allows you to trade in a smaller window while you continue with your day to day things.

About Admiral Markets Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8, financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!

ZigZag indicator in Forex

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

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