Indicator ZigZag is a trading instrument that is designed to identify trends and filter market noise. It serves primarily as an additional assistant for analysing the market situation. And despite this, ZigZag is effective and worthy of attention of both novice and experienced traders.
Indicator ZigZag in action
How to launch the indicator on the trading platform?
Trader must take the following steps to use the ZigZag tool for a qualitative analysis of the market situation:
- To click on the indicator menu icon.
- To select the “Trend” category.
- To select ZigZag from the list and to open the instrument settings window by.
Launch of indicator ZigZag on the IQ Option platform
In the indicator settings window, only one parameter is available is the percentage. This variable should be set only on the basis of the experimental tests results of indicator on the demo account on different timeframes. Each trader must find this percentage on the chart with which it will be more convenient for him to trade.
Indicator ZigZag settings window
However, traders and analysts with experience have already deduced for themselves the necessary percentage values for each timeframe. This information is freely available.
The default setting is 1%. But, according to the recommendations of experienced traders, this value is effective for timeframes over 4H. During working with time intervals below 4H, it is recommended to take the following parameters:
- from 30M to 1H – 0.1%;
- 15M – 0.05%;
- 5M – 0.01%;
- at 1M and below – 0.0005%.
User also has access to graphical indicator settings, where his can change the colour and thickness of the indicator lines.
Functions of indicator ZigZag
This instrument is useful in trading with trend movements and flat. And Traders have formed a list of ZigZag functions for these two market situations.
What are the functions of indicator during trend?
- Confirms the current trend. In a bull market, instrument ascending lines are longer than descending ones. And at the bear market, on the contrary, the descending lines are longer than the ascending ones.
- Determining the strength of current trend. The equalization of the angles and lengths of the ascending lines in a bullish trend will indicate its weakening and approaching consolidation. If, with a growing market, each subsequent upward line of the indicator is longer than the previous one, then the trend is gaining momentum. These rules are relevant for the bear market.
- Optimization of search for entry points in market by Elliot waves and popular patterns. Visualization of reversal patterns and forms for meet the conditions of Elliot and Prechter.
Visualization of a popular pattern using the indicator ZigZag
What are the functions of instrument during flat?
- The indicator helps the trader to build a price channel from parallel lines, where each top that formed between the support and resistance lines is a signal to buy an option.
- User can determine the end of the consolidation period using this instrument, since an increase in the amplitude of fluctuations indicates the end of flat and the soonest formation of a trend.
- This assistant helps to identify narrow consolidation areas in a timely manner. These are dangerous places in the market where the amplitude of oscillation is minimal and the indicator lines are drawn at an angle of less than 45 °. At such moments, the trader is better to stop trading until a trend is formed. Otherwise, the user risks of closing the deal with loss.
ZigZag is a universal trading instrument. Trader can increase the productivity of the used trading system using this indicator. ZigZag is designed to facilitate the process of technical analysis of stock charts. This assistant works well on all timeframes and with different assets and it is also powerful instrument for effective trade.
NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.
GENERAL RISK WARNING