It only takes some practice and experience to recognize the behavior of the zig-zag indicator on your price chart. In this case, you could use a more sensitive Zig Zag setting to adjust to the new trending market conditions. In addition, when there is a news release, the market can trend very strongly and often shows minor if any retracements. Combining this with the swing levels indicated by the Zig Zag indicator can provide for an overlapping confluent signal.
We know that based on Fibonacci analysis, price will typically retrace 38 – 50% of the previous leg. Thus, in a way, the zigzag indicator constantly adjusts to highs or lows, until a new major low or high is formed. But in reality, a repainting indicator simply adjusts to prices as they unfold. Many traders shun using a repainting indicator, because they think this is unreliable. In hindsight, the zig-zag indicator looks as if it is constant, but in reality, it is a self-adjusting dynamic tool. 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. 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. It is important to understand that the zigzag indicator repaints. Now that we understand the mechanics of how the forex zigzag indicator works, let’s turn our attention to applying this to actual trading. The reason that this swing low was plotted is because that was the major low point in price for the previous three bars.Īt point two, after the low was formed, the next couple of bars continued to post a higher low.įour bars later another high was formed at point three.Īgain, you can notice that both the deviation and the high occurred on the 5 th bar (backstep was a minimum of 3).
Following that, seven bars later a new low was formed. At point one, we have the first major high that was formed. The above zig zag is plotted based on the default settings of 12, 5, and 3. Let’ take a look at figure 3 below to understand how the indicator’s parameters work together. 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. With all these three settings coming together, the zig zag indicator can now be plotted. This is the minimum number of bars where there isn’t any second maximum or minimum deviation from the bar.ĭeviation in the second setting is the number of pips or points (depending on the market) after the previous minimum or maximum is formed.īackstep is the last setting and reflects the minimum amount of bars between which the high and low can be plotted. Depending on the charting platform that you use, you may find different default settings.ĭepth is the first setting in the zig zag indicator. These settings reflect the zigzag indicator for the MT4 platform. Despite just three settings, the zigzag indicator can be tweaked to fit different market conditions.įigure 2 below shows the zigzag indicator parameters. There are just three variables to use or rather three settings. The zigzag indicator is rather simple in terms of the settings.
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How to set the forex zigzag indicator parameters?
In addition, we will explore some examples of how you can use the zig zag indicator in building various trading strategies. You will learn how to make use of the zigzag drawing tool and tweak the settings. The zigzag indicator is quite versatile and in this article, you will learn how to use the zigzag indicator in forex trading. 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. In the chart below, Figure 1 shows a forex zig zag indicator. Therefore, the indicator plots the trends in the markets, while ignoring minor price retracements. When applied to a chart, this indicator displays lines connecting high and low swing points.What the zig zag indicator does is, basically filter out the price movements based on the settings. The color and weight of the lines drawn with this indicator may be adjusted by editing the inputs LineColor and LineWidth. A high swing point is when the price is higher than the prices before and after it a low swing point is when the price is lower than the prices before and after it. The ZigZag Pnts indicator finds swing points that are distant by at least some number of points specified by the input RetracePnts. Minimum point difference between swing points to plot. Analysis Techniques & Strategies ZigZag Pnts (Indicator)
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