What is the zigzag indicator? Teaching the Zig Zag indicator in technical analysis
Financial market traders are very interested in indicators and use them in their analysis. Indicators are a kind of robot; They automatically identify ranges and waves and provide traders with opportunities to trade. The ZigZag indicator is one of the most widely used indicators, especially for new traders, which can identify price trends and pivots.
In the rest of this article, stay with Valx to teach zigzag and how to work with it, and then use it on the Bitcoin cryptocurrency chart.
What is the zigzag indicator?
The Zig Zag indicator is a basic indicator that displays the price trend in the form of zig zag lines. This indicator offers one of the easiest trading strategies and helps traders to find important ranges that have the potential to change the trend. Zigzag indicator is used in all financial markets and in different time frames. Therefore, both traders who are looking for short-term fluctuations and investors who are looking for long-term profits can use this indicator.
Zig zag indicator identifies points of the price that have changed more than their previous waves and then defines them by drawing lines in the form of zig zag waves. Once these points are identified by the indicator, traders can easily find support and resistance levels.
To get more information about indicators, I suggest reading the article What is an indicator?
Checking the key parameters in the Zig zag indicator
The zigzag indicator has two very important parameters in its structure, with the help of which it draws the desired waves. These two parameters are called Pivot legs and Deviation and they play an important role in the functioning of this indicator. In the following, we will discuss each of these parameters.
Pivot legs parameter in zigzag indicator
To better understand this parameter, we must first learn the difference between major pivots and minor pivots. Major pivots indicate a change in the overall trend of a currency, but minor pivots only include small price reversals (pullbacks). The depth of this indicator shows its reaction rate from major and minor pivots. The lower this amount is, the number of fluctuations and lines (sensitivity) of the indicator increases. This amount is set to 10 by default, but traders can customize it according to the desired strategy and time frame.
Deviation parameter in Zigzag indicator
Deviation is another important parameter in zigzag. This parameter is located in the settings section of the Zig zag indicator called Price deviation for reversals. This index expresses the minimum distance between the pivots. By default, the amount of deviation is set at 5%, but analysts can change it based on their strategies.
Important tips for setting the Zig Zag indicator
In choosing the amount of Deviation, you should choose a value that forms appropriate geometric patterns and the drawn lines can display the market trend. By doing this, you can form a correct view of the market conditions. In choosing the amount of lag pivots, you should first weigh your perspective on the transaction and know how much market volatility is important to you, then adjust the accuracy of the indicator accordingly. But in general, you should choose a value in determining this parameter so that the return rate of the indicator from the major and minor pivots can be easily recognized.
Zig Zag Training in Trading View
To use the zigzag indicator, first log in to the site Tradingview Then search for Zig Zag in the “Indicators” section and click on it to add the desired indicator to the chart. Then you can change the parameters according to your strategy and then analyze the desired currency pair. Choosing the mentioned parameters will have a high impact on your analysis and is very important in creating your personal strategy. To make changes in the parameters, click on the settings option next to the indicator and customize it according to your needs.
Zigzag indicator and support/resistance detection
One of the main uses of the Zigzag indicator is to identify support and resistance areas, especially for new traders. As we found out above, this indicator identifies the price reversal points and connects them to each other. By identifying the return points, we can connect the floors to each other and the ceilings to each other to create support and resistance ranges. This can be very helpful in finding the right spots to grab a deal. In the rest of this article, we will use this indicator on the Bitcoin chart.
Combination of moving average (MA) with zigzag
Moving Orange is another popular indicator among traders, whose combination with the Zigzag indicator can increase the probability of winning (Win Rate) of the specified ranges. Moving Origin is an indicator that calculates the average of a number of candles before it and displays it as a curve on the chart. For example, MA20 calculates the average of its previous 20 candles. When the price is above the moving average curve, it indicates its tendency to grow, while when the price is below the curve, we can expect the price to fall. The moving average curve also works like the resistance and support levels, and when the price meets this curve, we can expect the price to return.
By combining these two indicators, traders can find a better view of the market trend and price reversal ranges. When the ranges specified by the Zig Zag indicator collide with the curve of the Moving Origin indicator, we can enter into a trade with a lower risk and a higher probability of winning.
Keep in mind that longer moving origins (for example MA50 or MA100) are more suitable for combining with Zig Zag.
Zigzag indicator strategy with Fibonacci ratios
In the previous part, we got acquainted with the combination of zigzag and moving orange indicators, but this indicator has the ability to combine with many indicators, patterns and ratios. Traders also like to combine the Zig Zag indicator with Fibonacci and use Fibonacci levels to get the necessary confirmations. Traders can draw Fibonacci ratios from the tops and bottoms formed by Zig zag logs and identify important levels in between. They can also use these levels to capture smaller fluctuations in the market.
Checking Zigzag indicator on Bitcoin chart
It was said above that this indicator is used in almost all financial markets, in the following we will examine the use of this indicator in the Bitcoin chart and the price reaction to this indicator. Pay attention to the image below, we connected the two bottoms formed by the zigzag indicator to create a support range for the price. The price has reacted and bounced back by hitting the red support level. As a result, in this range, we could make a purchase (Long) transaction and profit from the price growth.
In the following, the price hits the drawn level again, but this time the support level does not have enough power to return the price and the range is lost; Here we see the so-called transformation of levels (SNR) and the support level becomes a resistance level. After breaking this level, we can form a falling view and take profit from the price drop by taking a short sale. After turning the support level into a resistance level, this same level has given us the opportunity to sell three times. (Sales transaction opportunities are highlighted in red)
Next, we can use this drawn level and make a buy transaction. Pay attention to the picture below, the price has been squeezed in a few candles by hitting this resistance level and then seeing a price growth after breaking this level. With the break of this level, we again see a reversal of levels (SNR) and we can again change our view and take a long trade to take advantage of the price growth.
By connecting the two price floors of the Zigzag indicator, we created an important level, using only this level we were able to see 6 attractive trading opportunities.
Zigzag indicator with Fibonacci ratios on Bitcoin chart
The image above shows the zigzag indicator on the Bitcoin chart. Choose the desired log (this log should have a suitable depth and preferably be the last indicator log) and then mount the Fibonacci ratios on the top and bottom of this log. By identifying important Fibonacci ratios (ratio 0.618 and 0.382) Good resistance and support areas have emerged for us, which the price has reacted to many times and traders could take advantage of these opportunities.
As we discussed in this article, ZigZag is a useful tool for identifying entry and exit points for trading that you can easily use and combine with other technical tools. We hope that reading this article has been fruitful for you dear friends. We are waiting to receive your comments about the zigzag indicator.
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