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
· 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.
· 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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