The ZigZag Indicator is a handy tool for traders, helping to track and connect the extreme points on your price chart. It highlights significant price movements by only considering those changes that meet or exceed a specified percentage on the price scale.
Let’s break it down a bit: the Depth setting refers to the minimum number of bars that need to exist before a new peak or trough can be established. Essentially, the ZigZag can show divergence, but it will only converge or align perfectly after the specified number of bars defined by the Depth setting. The Backstep is another important factor, representing the minimum number of bars between any two peaks or troughs.
Once the ZigZag identifies the lowest point in the price movement, it begins searching for the turning point. This is where it gets interesting! If the price rolls back down from a recent high and exceeds your set parameter, that upper point is marked, and the ZigZag starts looking for the next lower point, and so on.
If you want a more detailed understanding of how the ZigZag works, check out the full description available in the Technical analysis: ZigZag.
ZigZag indicator
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