Triple zigzag forex system
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We will give you an understanding of how to trade with the Zigzag indicator. What is the Zigzag Indicator? The Zig Zag is a technical indicator that measures the swing highs and swing lows of a market. This will help you identify with better accuracy the market swing high and low points. The Zigzag tool is primarily used to filter out the market noise.
You can learn how to profit from trading here. Eliminating the small price movements gives you the ability to see the bigger picture. The Zigzag indicator parameters are very important to cover enough price data so the indicator can display zigzag waves on your chart. These are the Zigzag parameters input that you need to figure out: Depth — it refers to how far back in the chart bar series it will look. But, if the parameters are set to tight, you can have a zigzagging effect.
But we want to have a broader view of what the true swing high and swing low are. Wave depth which should give you a good depth of waves between the swing highs and lows. The zigzag indicator is one of the default technical indicators that come with your trading platform MetaTrader4, TradingView, etc.
How to Trade with the Zigzag Indicator The ZigZag swing trading strategy presented below requires the use of one particular indicator. It will be used for trade management as well. Now, before we go any further, we always recommend taking a piece of paper and a pen. Note down the rules of this entry method. Step 2: Plot the Fibonacci Extension line once the first two swing waves are established.
In order to plot the Fibonacci Extension line, we need three points of reference. The reason why we use the Fib extension levels is to try to anticipate where the last swing wave of the Zig Zag pattern will form.
The zigzag indicator will only mark the swing low as being formed too late for us to rely and base our trades alone on this indicator. This is the main reason we employ different trade tactics. Step 3: Wait for the third wave to terminate between 0.
Throughout our backtesting software , we have found out that the third wave of the zigzag pattern ends between 0. Step 4: Wait until you have a candle with a higher low on the right and the left. The bar from the right needs to break above the bar on the left. 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.
Figure 3: Zig Zag indicator settings The above zig zag is plotted based on the default settings of 12, 5, and 3. 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.
Click Here To Join How to use zigzag indicator in forex? As 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. 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.
You might end up using different settings for one asset or instrument versus another, or you could also end up changing the settings for the same market or indicator when the market conditions or volatility change. Besides the standard zigzag indicator that is commonly available, you can also find a variation of this tool. In this case, the zigzag indicator plots the high and low when there is a percentage move in price.
The main difference though is that perfect highs or lows are not captured but only percentage moves. This percentage based Zig Zag indicator is not available on most forex charting platforms such as the mt4 as this approach is more commonly used in stocks. Percentage moves are quite common to the stock markets and one can build customized trading strategies around this. As with the conventional Zig Zag indicator, this customized zigzag indicator also plots the highs and lows and can therefore visually depict price retracements in the market.
A unique feature of this though is the fact that the customized zigzag indicator can either use price high and low when using the candlestick or bar chart or it can use the line chart where only closing prices are used. What trading strategies can you use with the zigzag indicator? There are many ways one can employ the zigzag indicator. For starters, a popular method for using the zigzag indicator is in identifying chart patterns. Classical chart patterns such as the head and shoulders pattern, triangles , rising and falling wedges can be easily identified using the Zig Zag tool.
Such an approach is ideal for use in price action based trading strategies. In figure 4, we have an example where the zig-zag indicator has plotted a head and shoulders pattern. Figure 4: Zig Zag indicator — Head and shoulders pattern In the above example, we can see a very clear Head and Shoulders pattern on the price chart.
Typically, trading such patterns can be quite subjective. You can also see the break of the head and shoulders neckline support with the strong bearish candle. Another way to use the zig zag indicator is by combining it with other technical indicators. In figure 5, we make use of a 20 and 50 period moving average crossover along with the zigzag indicator. Figure 5: Zig Zag indicator with technical indicators moving average In the above example, we can see the zig-zag indicator at work.
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