Indicator "zigzag" in practice

To be fair, zigzag is not an indicator in itself, but rather a means to filter out random noise and compare relative price movements. Zigzag can be installed to observe the minimum price changes and ignore those that do not meet the established criteria. Minimum price movements are in percentages and are based both on the closure, as well as the range of maximum / minimum.

Installing the zigzag to 10% with OHCL-bars would lead to a line which is developed only after the change from maximum to minimum of 10% or more. All movements of less than 10% would be ignored. If market instruments traded on a minimum of 100 up to a maximum of 109, zigzags not held to the line, because the movement was less than 10%. If market-based instruments advanced to the point of minimum 100 and maximum at around 110, then held a zigzag line from 100 to 110. If market-based instruments continued movement to a new peak at around 112, then this line would be extended to 112 (from 100 to 112). Zigzag not be turned until the market-based instruments are not reduced by 10% or more of its maximum. From the peak at around 112 market-based instruments should have been reduced to 11.2 points (or to a minimum at around 100.8) to zigzag turned and found another line.

Using the zigzag
Filter: Variability and the daily price fluctuations may make random movements or market noise. Zigzag can be used as a filter that noise. If the price movement of less than 5% are considered to be negligible, the zigzag can be set to 5% of all traffic for less than 5% will be ignored.

Elliott Waves: zigzag can be used to determine the Elliott Wave. (Note: The purpose of this article is not an Elliott wave theory, but it is provided for ease of illustration, the method of using zigzag.)

Elliott Waves
In the case of zigzag HWP set at 15%. All movement in the 15% or more have been conducted, and those that are less than the 15% - ignored. The large increase began in October 1999. and formed a 5-wave structure, which lasted until mid-2000. Within this large structure, the other smaller vibrations can also be decoded.

Recovery: zigzag may be used to measure recovery. After the increase to the usual market-based instruments is a corrective restoration of this increase. After reduction, the normal for the market as a remedial tool for the restoration of this decline. According to Dow Theory is the most likely reconstruction of 1 / 3, 1 / 2 and 2 / 3 of the previous motion. Based on the Fibonacci numbers are significant levels of recovery at 61.8% on 38.2% of the previous motion.

Restoration
During the raise from 34 to 55 double-adjusted HAL (waves 2 and 4) and met the two goals the restoration of Fibonacci: .618 and .786. Perhaps the most important Fibonacci numbers - it is .618, which is the "golden section". The square root of .618 is .786 (78.6%), which is another Fibonacci numbers are often used by Scott Karneem. In March of 2000. HAL regained 79.8% of the increase in wave 1 (red oval). From a minimum of March 2000. share rose to 1.7 times of its previous decline to form wave 3, which is close to the level of Fibonacci - 1.618. Correction in the wave 4 regained 67.6% of the increase in wave 3. While 67.6% and 79.8% not very accurate reconstruction of the Fibonacci levels, they are quite close to the values of 61.8% and 78.6%, to draw attention to them.

Design
Zigzag can be used to measure the initial price movement. Unlike corrective recovery movement, the primary price movement occurs in the direction of the main trend. Rather than restore the part of the previous motion, the primary motion continues past the previous maximum or minimum corrective. Many analysts use the Elliott wave and Fibonacci sequence designs increase or decrease the length by multiplying the previous recovery of a certain ratio. If the previous decline (correction) was 50 points, to design a new peak with subsequent increases in the use of Fibonacci ratios can be obtained by multiplying the previous motion on the ratio of 1.618 (50 x 1.618 = 81). 81 item will be added to the starting point for improving the design goals of price movement.

The use of graphics programs
In graphics programs, there are two options zigzag: zigzag (baseline) and with the zigzag / recovery. Both hold the same line, but with the zigzag / Restore adds yarlychki and the dotted line for the restoration of relations.

Zigzag (base) will hold the line, based on the minimum percentage change in prices. Changes in prices can be based on the closing levels or range of the maximum / minimum. To calculate the zigzag, based solely on closing prices, you must select "Line (NAV)" option to "Price Style", which is in the tab "Price Attributes". To calculate the zigzag, based on the range of maximum / minimum, you must select "OHCL-Bars, HLC-bars or candles in the option" Price Style ".

Zigzag (base)
Percentage change in prices to the changing fortunes can change by using the first option right. The default value is set at 5%. In the example, the indicator has been set to 12 (or 12%). All the price movement of greater than or equal to 12% will be marked by zigzag lines. All the price movement of less than 12% will be ignored. Zigzag conducted by a thick line to the top of the price plot.

IBM zigzag from / Restore
Zigzag from / recovery ratio includes related price movements. In the case of IBM, with a zigzag / reconstruction was set at 12%, to filter out all the price movement of less than 12%. Were compared, three pairs of price movements in June 2000. to November 2000. Dotted lines connect the respective maxima and minima, and the ratio appear in the middle of the dotted line. The first ratio is equal to 1.566, representing increases, which amounted to 156.6% from the previous decline. The formula is calculated in three stages:

First Price Movement - Reduction: 122.31 - 100 = 22.31
Second Price Movement - Improved: 134.94 - 100 = 34.94
The ratio of increase / decrease: 34.94/22.31 = 1.566

The calculations for the other two ratios (1.374 and .309) are shown in the chart.

Conclusion
Zigzag is unable to predict the price movement and holds the line on the basis of the actual motion. In order to predict price movements, you can apply Elliott waves, or levels of recovery and the design of Fibonacci.

The final line of zigzag may vary. In the case of IBM, the current maximum zigzag is 104.38.

Due to the recent decline, continued to zigzag down from 104.38. However, the current decline is less than 12% of the minimum. If the current decline is not in a position to exceed 12%, and if IBM will increase above 104.38, then the line will be held from 86.94 to a new peak, and the ratio (.363) change. The red line in the example above shows what happens if IBM will rise from current levels and move to 110. The green line, carried out since October will be replaced by a minimum of one line of the straight to 110.

Arthur Hill
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