ZigZag per se is not an indicator, but it is a filter to show you where the trend has changed. In various spreadbetting strategies this is very useful in showing you where to find support and resistance areas or various classic patterns like a double bottom, triple bottom head and shoulders.
As a spread bet trader you define the ZigZag Indicator filtering out what percentage swing you are looking for between the previous high and the previous low. A 5% setting will draw a change of direction once prices have changed 5% for the recent peak or trough.
-Below is a spreadbetting example of the FTSE Index applying a 5% ZiZag Line
The lower you apply the settings to the ZigZag indicator the more sensitive it will be to a change in price from the previous high and low. This is subjective to how much noise you want to filter from the price movement.
Below is a trading example of the FTSE 100 with a 2% setting, thus making it more sensitive to price change.
You can apply this indicator on any Index, Forex currency, stock.
In the next article I will show you how to practically use the ZigZag indicator to filter out patterns or used also in the Elliot wave count.
Next: ZigZag – Practicle use.