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How does ZigZag
work? For a
better understanding, let’s analyze the logic of the indicator. There are no
secrets in it, everything is elementary simple. The example below uses standard
parameters. The construction is done like this: ·
First, the indicator selects an extreme point over a period of N
candles. The number of candles N is determined by the Depth parameter in the
indicator settings. ·
The chart grew for some time, then began to
decline; over an interval of N candles, ZigZag
began to look for a local maximum. ·
The distance from the last local maximum to the ZigZag
minimum is taken as 100%, and the Deviation parameter is calculated relative
to it. ·
If the chart continues to rise and the price rises 5% relative to the
underlying move, the high will be moved to a new top. ·
A new low will be formed after the ZigZag
indicator finds a new low using the same algorithm. The cycle of these
actions repeats endlessly. The last line of the indicator may be redrawn
when the maximum is updated. In
history, it seems that tool works without misfires; this fact is explained by
redrawing. It is precisely not precision that does not allow using ZigZ for trading as the only source of signals to enter
the market. The redrawing effect is more visible or more voluminous in the
MetaTrader4 tester. A little
intraday period passes and the chart updates the extreme, falling slightly
below the previous low. The zig zag
moves the end of the line to a new local minimum. When working with history,
you won’t be able to notice such an effect. An improved version with cycle
information will partially correct the situation. There is
no deeper redrawing, that is, only the position of
the last line changes, the position of the penultimate and earlier lines does
not change regardless of the behavior of the graph. How to setup If you
activate the ZigZag indicator, the standard
indicators are already set in the settings window. If necessary, you can
change data by adjusting the calculation formula of the tool. The
Deviation characteristic is responsible for the sensitivity of the readings.
Expressed as a percentage, it takes into account the ratio of the price
movement from the previous extreme point. For
example, if Deviation is 5%, and the new candle has a high price that is 0-4%
lower than the previous one, it will not be considered a high. Minimums are
calculated in the same way. The Depth
characteristic shows how many candles must form after the last extreme and
the system to start looking new top or bottom. Finding necessary point is
possible because ZigZag works without redrawing.
Thus, a minimum cannot be followed by a second minimum. By
determining the size of the Backstep, the trader
indicates how long after the search for the opposite extremum
can begin. Evidence of that means that the nearest minimum and maximum may
occur no earlier than indicated in appropriate characteristic. The
standard indicator values can be changed. The smaller the indicated numbers are, the larger and more often the peaks and valleys will
appear on the chart. Increasing data makes the occurrence of extremes more rare. In the
settings you can also change the color of the ZigZag
line. Similar setup makes it easier to understand. This fact should be taken
into account if there are several programs on the chart - the lines will have
different colors and will no longer merge with each other. In the
standard version there is no notification about wave size, volume, and so on.
Consider Alert versions, improved, reprogrammed mq4. Also, other codes can be
added, such as: interest calculator, consolidation, multigraphs,
point alert, start of a stage, adding an arrow, volume algorithm calculation.
You can write code using your formulas and parameters. Technically,
the program is not complicated, but very useful; you can also draw trend
lines using it, build your own strategies, for example, based on the 1-2-3
strategy, breakout systems, Forex fractals. You can
download the default version on the mql5 website if you need it. Combinations
with zigzag are varied, with atr, fibonacci, along horizontal pivot lines. How accurate and
profitable this will be depends on competent compilation and on the trader in
whose hands these tools are, how much better you program and build
strategies. But even with standard settings you can achieve good results
using it as a filter. But you should not go into a large deviation in depth;
try to stick to the period within the day. ZigZag Elliott Waves Elliott
wave theory is perhaps one of the most difficult (but also interesting!)
topics in technical analysis to help novice traders. Let us recall that the
financier Elliott believed that the market develops in the form of a
repeating series of waves (5 waves). So, “ZZ” is quite good for identifying
these waves! The waves
indicated by the symbols 1-3-5-A-C are driving waves; and waves 2-4-B,
respectively, are corrective (these are price pullbacks). Also, the
“ZigZ” plus indicator recommended be used to
recognize various graphic patterns. As already noted, it also helps in
filtering market noise. But this is still not a predictive Forex tool, but a graphical tool with an extension.
Therefore, you should not use it alone, but as a useful addition, please. |
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