The Zig and Zag is just another version of the popular ZigZag. Although, not necessarily an indicator, it is usually employed in filtering out smaller price actions.
The Zig and Zag tries to determine support and resistance levels, typical chart patterns i.e. double tops and double bottoms and obviously price trends. The calculation for the ZigAndZag indicator employs both swing highs and swing lows:
Swing Highs – are essentially when price (normally close) is both higher than the price that is prior it and afterwards.
Swing Lows – are essentially when price is both lower than the price preceding it and lower than the price next to it.
The ZigAndZag is simple to grasp and apply. There is a change in price below a particular threshold, usually 10% or 20%, are extracted from the trend lines via the filtration method.
If the ZigAndZag is set at 20% only price actions greater than 20% would be displayed. The ZigAndZag is now able to filter out small movements thereby allowing it to concentrate on big moves.
It is important to know the ZigAndZag has no prognostic power since it can only draw lines in view of perception.
Chartist can add applications such as price pattern analysis tools, Elliot Wave and indicators to gain predictive power during trading. Chartist can also employ the ZigAndZag tool along with its retracement characteristic to spot Fibo retracements and estimates.
The ZigAndZag should not be used as a central point of any trading strategy, rather it should be applied as a complementary tool – swing traders will find this tool very helpful.
MT4 Indicator Characteristics
Currency pairs: Any
Platform: Metatrader 4
Type: chart pattern indicator
Customization options: Variable (KeelOver, Slalom), Colors, width & Style.
Time frames: 5-Minutes, 15-Minutes, 30-Minutes, 1-Hour, 4-Hours, 1-Day, 1-Week, 1-Month