The ZigZag indicator is an incredibly simple tool that you can use to quickly find high probability trend trading, swing trading and reversal trading opportunities.
Using the ZigZag indicator you can very quickly spot the trend of the market as well as potential areas to look for new trades.
In this post we look at exactly what the ZigZag indicator is and how you can use it in your trading.
What is the ZigZag Indicator?
The ZigZag indicator plots lines on your chart that show as zigs and zags as price moves higher or lower.
It does this by filtering out smaller price movements and swings and showing the larger changes.
The default setting is 5%, meaning that only price movements of 5% or more will be connected and shown on your chart with a zig or zag line.
To further cancel out any of the smaller price movements and ensure only major price moves are plotted you can increase the settings to 8% or more.
When you filter out smaller and less significant price movements with an indicator such as this it becomes very easy to quickly spot the important price swings. You can also quickly spot the important swing highs and swing lows.
This can help in many different ways. You can use these levels to find the obvious trend, mark your support and resistance levels or look for potential trade entries using your candlestick patterns.
Built in ZigZag Indicator MT4 and MT5
The ZigZag indicator is built directly into your MT4 and MT5 charts.
To start using this indicator follow these steps;
NOTE: If you do not yet have the correct charts, you can read about how to get Free MT4 / MT5 demo charts here.
- Open your MT4 or MT5 charts.
- Select ‘Insert’ > ‘Indicators’ > ‘Custom’ > ‘ZigZag’.
- When you add the indicator to your chart a box will open with settings you can customize.
- Select the setting you would like and hit okay to apply the indicator to your chart.
How to Use the ZigZag Indicator
One of the best uses of the ZigZag indicator is to quickly identify trends to make trend trades.
The ZigZag indicator plots important swing high and swing low levels. This helps you quickly see if price is either trending higher or lower or in a ranging market.
The example below shows how you could use this indicator to help you quickly make trend trades.
The ZigZag plots and lines up the important swing high and low levels. You can then see that the price is making a series of higher lows and higher highs in a clear trend higher. You could then begin looking for trades to get long with the trend higher.
123 Reversal Trading
Being able to identify when a trend is changing can put you on the front foot and ahead of many others in the market.
The 123 pattern is a reversal pattern that can be used in many markets and different time frames.
When using the 123 reversal pattern you are looking for a trend reversal that forms with three main legs.
As the example shows below; price makes the first move higher, followed by a short pullback lower. The pattern is confirmed with the third leg where price breaks through the recent high.
The ZigZag indicator makes spotting the 123 pattern and using it in your trading incredibly easy because the swing highs and swing lows are already plotted for you.
Double Top and Double Bottom Trading
The double top and double bottom patterns are extremely popular because when done correctly they can yield high reward trades.
This is a very simple technical analysis pattern where price is either bouncing twice from a top or twice from a bottom.
The ZigZag indicator can help you very quickly find and then trade the double top and double bottom pattern because it is plotting the important swing points. You can then quickly line up the double top or double bottom areas to look for potential trades.
The example below shows how you could do this. The two swing lows are plotted with the ZigZag indicator and you just need to line them up with your support and resistance level to see that price has made a double bottom.
Custom ZigZag Indicator MT4 Download
Whilst the built in MT4 ZigZag indicator is ready to go and use out of the box, there are other free custom indicators that you can use that have extra features.
One of these indicators you can find at MQL5 and comes with a few extra addons.
This custom indicator was created to give better visual cues that could aid in finding better trade entries.
As well as the base ZigZag indicator features, this indicator has the following;
- Shows you the highest highs and lowest lows for the “depth” period.
- Displays extra visual cues.
- Has the option of displaying all ‘break out’ points including breaking above highs, or below Lows.
The ZigZag indicator is an incredibly simple and yet useful indicator.
You can use it to find trends, reversals and other patterns like the double top and double bottom.
Most traders will find it is best when used with other analysis and indicators. These could include using moving averages to assess the trend or trendlines to line up the swing points.
Lastly, always ensure to test out new indicators, strategies and systems on a demo trading account to make sure you are profitable with them before risking real money.