ZigZag Indicator Usage, Calculations Details

ZigZag Indicator Formula

The zigzag indicator is a very diverse indicator. It allows for a huge versatility in both trading and analysis. This indicator can be used to filter out relatively small price movements. The indicator is what is known as a filtering or smoothing indicator. Here, you will get to know about the indicator usage, settings, detail.

The ZigZag can identify tops and bottoms depending on the preferred input settings. Traders must be able to identify higher highs, higher lows, lower highs, and lower lows just by looking at the indicator lines here.

ZigZag Indicator FAQ

What is the zigzag indicator used for?

Basically, traders use the indicator to identify price trends. It eliminates random price fluctuations and attempts to reflects trend changes. Zig Zag lines only occur once there is a price movement between a swing high and a swing low. So, by filtering minor price movements, the particular indicator makes trends easier to spot in every time frame.

Does zigzag indicator repaint?

As you can notice, multiple signals are repainted by the particular ZigZag indicator over time. Fractals have been used to reduce the number of highs and lows painted. It depends on the original MetaQuotes ZigZag indicator

How does zigzag indicator work?

The Zig Zag indicator lines only appear once there is a price movement between a swing high and a swing low that is greater than a particular percentage. It is often 5%. So, by filtering minor price movements, the indicator makes trends easier to spot in all the time frames.

How is zigzag indicator calculated?

The particular Zig Zag indicator is calculated by placing imaginary points on a chart once prices reverse by at least the specified amount. Then Straight lines are drawn to connect these imaginary points.

ZigZag Parameters

These are the key Zigzag parameters input that one needs to figure out:

  • Depth – It defines how far back in the chart bar series it will look. To get the highs and lows defined one needs to make sure one has enough “Depth.”
  • Deviation – What % in price change does it take to change the trendline from positive to negative.

How to Use ZitgZag indicator on Charts?

The traders are getting more details regarding the ZigZag indicator, then please open the STUDIES section of Zerodha Kite. The traders are also visiting in Kite mobile App. The distance is 10. If you want to change this value up or down then you can change it. The traders can also check the attaching process of the ZigZag indicator to the Reliance Industries share price chart. Charts of this indicator include various time limits, daily, weekly, monthly or intraday.

ZigZag Indicator Settings

Here, we are going to present the Zigzag indicator with two different scripts from two different platforms, Fyers and Upstox.

Zigzag indicator fyers
ZigZag Indicator Usage, Calculations Details upstox

In the first chart, the ONGC script is added and in the second chart, there is an HDFC bank. The indicator moves with the changing price. It helps to find out the support-resistance level as well as the target-stop loss. Traders can do basic trend analysis by using the specific indicator. Another reason for using the indicator is to reduce the noise. It clearly reflects the trend reversal as well as the trend changing pattern.

What is the Key Usage of ZigZag Indicator?

  • Traders use the indicator to identify the price trends of the traders.
  • This indicator eliminates random price fluctuations and attempts to show trend changes.
  • The ZigZag lines of this indicator only appear when there is a price movement between swing highs and swing lows that is greater than a specified percentage usually 5%.
  • This indicator is a very basic indicator which attempts to reduce the amount of “noise” in trending security.
  • The indicator is to assist traders with staying in a winning position and this is the main part of this indicator.
  • The traders can set the percentage move that will generate a change in the ZigZag signal. The default value for the indicator is 5%. This means that any counter move less than 5% will not generate a signal on the chart of this indicator.

How to Read Zigzag Indicator?

  • The ZigZag indicator does not predict future trends. This helps identify potential future areas of support and resistance from the swing highs and swing lows it plots of this indicator.

Like, in the above chart, the price tool perfects support from ZigZag and moved upward direction.

Zigzag indicator resistance

And, here, the price tool a resistance there and moved downwards.

Traders can use other technical indicators, likes the relative strength index (RSI) and/or the stochastic oscillator. When Zigzag lines change direction, overbought oversold occurs.

Stochastics

Here, I take buy position once the price takes support and at the same time stochastics moves to a positive level. And sell on that big bearish candle. There stochastics slow line crosses the fast line from below and goes above.

You can also use the ZigZag lines to spot reversal chart patterns, like a double bottom or a head and shoulders top.

Conclusions :

In the ZZI, ZigZag lines simply react when prices move a certain percentage. The traders can apply an array of technical analysis tools to the ZigZag. Traders are can perform basic trend analysis by comparing reaction highs and lows of this indicator. They can also overlay the ZigZag feature to look for price patterns that might not be as visible on a normal bar or line chart of this ZZI. The indicator has a way of highlighting the important movements and ignoring the noise.

When the traders are using the ZigZag indicator’s feature, then don’t forget to measure the last line to determine if it is temporary or permanent. The last ZigZag line of this indicator is temporary if the current price change is less than the ZigZag parameter. The last line is permanent when the price change is greater than or equal to the ZigZag parameter of the indicator.

Author: Ankita Sarkar

Ankita is a graduate in English language and she has also done her MBA from the Calcutta University. She has a high knack in the stock markets. She is a NISM certified Research Analyst. An experienced stock market content writer Ankita is also trading successfully on her own account.

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