Scalping, when used in reference to trading in securities, commodities and foreign exchange, may refer to. Zig Zag Indicator Helps Filter Out Market Noise. Flares. Twitter. 0Facebook. Google0. 0 FlaresThe Zig zag indicator is probably one of the most under rated tools used in technical analysis. Breakout trading leads to quick profits when you get it right. Grasp the essential concepts of breakout trading together with these 7 powerful tips. Unlike other trading indicators, the zig zag indicator often sits in the background, and is mostly used to as a secondary tool by many traders. But there are several great ways to utilize the zig zag tool. It can be used as a tool to detect swing points, as well as assist in counting Elliott Waves, and in finding support and resistance levels. Traders can come up other techniques that they can use to incorporate a zigzag indicator strategy based on their own trading style. The zigzag indicator works on various chart types. For example, a zig zag tool can plot the highs and lows when used on a candlestick chart or a bar chart. On the other hand, when using a line chart which use closing prices, the zig zag indicator plots based on the close. In some cases, the way the zig zag indicator behaves, will depend on the charting platform being used. Most commonly the metatrader zigzag indicator will make use of just high and low prices, regardless of the chart type being used. What the zig zag indicator does is, basically filter out the price movements based on the settings. Therefore, the indicator plots the trends in the markets, while ignoring minor price retracements. In the chart below, Figure 1 shows a forex zig zag indicator. The name is derived from the way the indicator plots the zig zag lines as it follows the swing high and low points in price. Figure 1 Forex Zig Zag Indicator. Simple Youtube Channel Joomla here. The zigzag indicator is quite versatile and in this article, you will learn how to use the zigzag indicator in forex trading. You will learn how to make use of the zigzag drawing tool and tweak the settings. In addition, we will explore some examples of how you can use the zig zag indicator in building various trading strategies. How to set the forex zigzag indicator parameters The zigzag indicator is rather simple in terms of the settings. There are just three variables to use or rather three settings. Despite just three settings, the zigzag indicator can be tweaked to fit different market conditions. Figure 2 below shows the zigzag indicator parameters. These settings reflect the zigzag indicator for the MT4 platform. Depending on the charting platform that you use, you may find different default settings. Depth is the first setting in the zig zag indicator. This is the minimum number of bars where there isnt any second maximum or minimum deviation from the bar. Deviation in the second setting is the number of pips or points depending on the market after the previous minimum or maximum is formed. Backstep is the last setting and reflects the minimum amount of bars between which the high and low can be plotted. With all these three settings coming together, the zig zag indicator can now be plotted. Understanding how the settings for the zig zag indicator work is important as it brings context to the manner in which the zig zag indicator plots the values and detects the swing high and low points. Let take a look at figure 3 below to understand how the indicators parameters work together. Figure 3 Zig Zag indicator settings. The above zig zag is plotted based on the default settings of 1. At point one, we have the first major high that was formed. Following that, seven bars later a new low was formed. The reason that this swing low was plotted is because that was the major low point in price for the previous three bars. At point two, after the low was formed, the next couple of bars continued to post a higher low. Four bars later another high was formed at point three. Again, you can notice that both the deviation and the high occurred on the 5th bar backstep was a minimum of 3. Now that we understand the mechanics of how the forex zigzag indicator works, lets turn our attention to applying this to actual trading. Learn What Works and What Doesnt In the Forex Markets. Join My Free Newsletter Packed with Actionable Tips and Strategies To Get Your Trading Profitable. Click Here to Join How to use zigzag indicator in forexAs we have previously pointed out, the zigzag indicator can be used in a number of ways. It can act as a confirmation tool, as well as assist Elliot Wave traders with wave counts. In addition, the Zig Zag indicator can be very useful in recognizing Harmonic patterns in fact, the zig zag tool is one of the critical elements of the zup indicator, which is a very popular harmonic pattern recognition indicator for Metatrader. It is important to understand that the zigzag indicator repaints. Therefore, if there is a new low or a high that is formed within the parameters, then you can expect the zigzag indicator to repaint again. In order to visualize this process, you can simply add the zigzag indicator to any chart in real time and you can see how the indicator will repaint. In hindsight, the zig zag indicator looks as if it is constant, but in reality, it is a self adjusting dynamic tool. Many traders shun using a repainting indicator, because they think this is unreliable. But in reality, a repainting indicator simply adjusts to prices as they unfold. Thus, in a way, the zigzag indicator constantly adjusts to highs or lows, until a new major low or high is formed. We know that based on Fibonacci analysis, price will typically retrace 3. Combining this with the swing levels indicated by the Zig Zag indicator can provide for an overlapping confluent signal. In addition, when there is a news release, the market can trend very strongly and often shows minor if any retracements. In this case, you could use a more sensitive Zig Zag setting to adjust to the new trending market conditions. It only takes some practice and experience to recognize the behavior of the zig zag indicator on your price chart. However, traders should not use the zig zag indicator in isolation. It is always recommended to make use of the zigzag indicator alongside other technical based analysis so there is some overlapping confirmation to the signals. For example, using the zigzag indicator with a longer term moving average can be viewed as a zigzag indicator strategy where the longer term moving average can confirm whether it is a bullish or a bearish market. Then the zigzag indicator could be used to provide entry signals in the direction of the longer term trend. Therefore, in an uptrend as defined by the longer term moving average, you can look for a zig zag low to form, wait for price to retrace from the low to confirm that the bottom is formed and then buy into the market. We will be illustrating a similar strategy in a chart example a bit later on. Zig Zag Indicator Settings and Variations. One of the commonly asked questions is whether there is a best zigzag indicator setting. While there are many theories that float around, the fact of the matter is that the ideal zigzag indicator settings can vary from one market to another. For example, the same settings used in a currency market may or may not work for stocks. Besides the asset or instrument in question, there is also the factor of volatility. Sometimes, volatility can play a big role and can even make the current settings unusable. Therefore, for an indicator such as the zigzag and in most cases with repainting indicators it is a priority that traders keep a constant watch on the settings and adjust them accordingly based on the market conditions.