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Which indicator to use with zigzag. How
does the ZigZag indicator work? Today's
article will be devoted to a simple Forex indicator, but oddly enough, a very
effective tool for trading on the Forex market, and it is called the ZigZag
indicator. Let's consider the following questions: 1.
What kind of indicator is this and what are the basic principles of
its operation? 2.
What does ZigZag show on the chart and what indicators does it consist
of? 3.
What main signals can it show for a trader and what working tactics
are there for using it? 4.
Advantages and disadvantages of using the ZigZag tool in trading. The
ZigZag indicator belongs to a number of trend indicators and is depicted on
charts in the form of segments connecting local price extremes. Thanks to
this, it is possible to consider important market movements without taking
into account noise (a similar principle to). Unlike many other technical
tools, ZigZag does not predict future price behavior, but only indicates
significant changes in the past. Also,
this tool is often used in conjunction with Elliott theory to determine the
main waves and corrective pullbacks. His main idea is to cut out market
noise. It helps to objectively assess market behavior and not miss a strong
movement. Settings and signals from the
ZigZag indicator This tool
does not require preliminary installation, since it is a standard indicator
and is available in everything (by default, the “Custom Indicators” tab). As
the name suggests, when installing the indicator on a chart, the user sees
several segments forming a broken line. The appearance depends on the
parameters specified by the user. The parameters of the ZigZag
indicator are determined by the trader depending on personal preferences: 1.
“ExtBackstep” – means the smallest number of Japanese candles between
the connected points. 2.
“ExtDeviation” – the minimum distance between local extrema, expressed
as a percentage. 3.
“ExtDepth” – the smallest distance (expressed in candlestick bars) at
which a new high or low will be drawn if it differs from the previous one by
“ExtDeviation”. One of
the simplest but most effective signals for entering the market using the
ZigZag instrument is opening a position after a price correction, the
well-known ZigZag pattern. This one is very popular among traders, not only
through this indicator, but also clearly on the price chart itself. As
mentioned above, Forex traders often use the ZigZag indicator in conjunction
with the famous Elliott theory. ZigZag provides invaluable assistance and
facilitates the process of identifying the main waves. The main
movements considered by Elliott are impulse waves A and C, developing in the
direction of the main trend and accompanied by corrections B and D, as well
as a corrective structure consisting of active waves (E and G) and one
counteracting one (F). Using
ZigZag in conjunction with Elliott waves, a trader can choose different
tactics. Popular methods are finding the first impulse in and opening a sell
order after the completion of the B-C correction. In the
latter option, to increase the accuracy of forecasting corrections and entry
signals, traders use. When finding a corrective movement in accordance with
the instructions of ZigZag and wave analysis, you should wait until the price
touches a certain Fibonacci level and open a position in the direction of the
main trend. Pros and
cons of the ZigZag indicator Advantages: ·
The ability to consider the most significant trends and cut out market
noise; ·
Use at different time intervals; ·
Combined work with various technical analysis tools, while an
effective combination with Fibonacci grids or Elliott waves can be
highlighted separately. Flaws: ·
The difficulty of creating an objective forecast; many traders
interpret the same phenomena in completely different ways; ·
When working with the standard version of the indicator, the last
segment may be redrawn depending on market events; ·
The biggest profits can be made when trading on large time frames, so
traders have to use long-term trading systems. When trading short-term, the
likelihood of making losing trades increases. As you
can see, the ZigZag indicator can be used when working with different
instruments (a variety of , futures, metals or stocks are suitable for this)
and apply many working tactics for different market situations. Many traders
with programming skills strive to improve the existing standard ZigZag, while
creating modified versions with additional features and functions. Among
these are: MultiZigZag, ZigZagFirst and others. If you have chosen an
indicator, then zigzag indicator with alert mt4 will be necessary for ease of
use. Well,
fellow traders, was this article about the ZigZag indicator useful to you? Do
you use it in your trading process? What additional tools do you use with
Zigzag? Perhaps you know some more effective, in your opinion, tactics for
using this tool? I would be grateful if you share them in the comments. |
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