We can apply the following strategy on both minor and major currency pairs. Liquidity and volatility will not be a major issue here as we are trading on higher time frames. We are basically using the zig-zag indicator to identify classic chart patterns of technical analysis and trade them. The indicator is very effective in reducing the noise by helping the technical trader in viewing the larger picture and general market direction.
Here, we look for appropriate chart patterns and associated price action indications within the context of a trend. When these patterns are formed just anywhere on the chart, they do not hold much value as there is no logic to that. Once we identify a trend using the simple moving average SMA , we wait for trend continuation signs provided to us by the zig-zag indicator and the chart pattern. The formation of the chart pattern is the first sign of trend continuation.
Trades executed this strategy have high risk-to-reward RR because we are trading with the major trend and the need for a smaller stop-loss. Now that we got a gist of the strategy, let us find out the actions required to execute the strategy. Here are the steps to execute the strategy. This can easily be done with the help of the simple moving average SMA indicator. If the price stays below the SMA for a long period of time, we say that the market is in a downtrend. And if it remains above the SMA for a sufficient period of time, we say that the market is in an uptrend.
It is worthwhile to note that zig-zag is not being used for establishing the trend. Step 4: Now, let us determine the stop-loss and take-profit levels for the strategy. The risk-to-reward RR of trades executed using this strategy will be at least Even though the above strategy takes a lot of time to present a potential trade, the risk-to-reward and probability of winning of these trades are worth waiting for.
Technical Analysis. Trading Skills. Your Money. Personal Finance. Your Practice. Popular Courses. Key Takeaways The Zig Zag indicator is a basic tool used by traders to identify possible trend reversals. The indicator is not the only tool a trader should use to make investment decisions. When starting a possible trade, the Zig Zag indicator should be the first tool used. Confirmation is then required from other, more precise trading tools.
These depend on the individual trader and their overall strategy. The Zig Zag indicator exists in order to apply consistency to trading signals. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear.
Investopedia does not include all offers available in the marketplace. Related Articles. Partner Links. Related Terms. Zig Zag Indicator Definition The Zig Zag indicator lowers the impact of random price fluctuations and is used to identify price trends and changes in price trends. What Is a Doji Candle Pattern? A doji is a name for a session in which the candlestick for a security has an open and close that are virtually equal and are often components in patterns.
Technical Analysis of Stocks and Trends Technical analysis of stocks and trends is the study of historical market data, including price and volume, to predict future market behavior.
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Accept the Stop-loss if any hour closes lower than the last. For the conservative style you can use this approach on the M15 charts. That is -. If any min candle closes lower than the last hourly minimum for a BUY trade. Use the Price Alert indicator to control these levels. For continuation trades.
Accept the Stop-loss if any hour closes lower than the. If any min candle closes lower than the control level of 40 pips from the last. If it. If the price comes back from At best you will. Take Profit Levels. Wait for an opposite ZigZag arrow. This could be a. Wait for an opposite ZigZag arrow there. This will be. Wait for an opposite ZigZag arrow on the 1H chart.
Or even on the 4H chart. When you have enough equity you can double or triple your trades and apply. Short Trade Example. Perfect short trade. On the next H1 chart we have a maximum and two ZigZag arrows at 1. SELL trade will take place if the min candle closes below the 1. Checking the H4 chart:. Switch to M15 chart. The candle that closed lower than our control level was a valid signal it closed at. The SELL trade was open with the market order at 1. The Stoploss. If we return back to pic.
If we wait for the second profit target on the M30 chart it could be approximately. It is a very decent profit for the. Long Trade Examples. Losing long trade. On the pic. The price is moving. At last the min candle marked with the red arrow closed at 1.
We open a BUY. The stop-loss level is at 1. We return to the H1 chart and see that several hours later the candle marked. We close the trade. The loss is. Special opportunity for a long trade. On the chart in pic. But please pay. We are very close to its level and it is possible. The control level for a BUY trade will be at 1. Long trade with good potential but small result.
The candle marked with the red arrow has a steelblue arrow. There was a main. Now, when preparing this example, the. But at that moment, on February, 12, it was a signal for a coming trade. The stop. There were no strong signals at that moment on H4 chart. There was a signal. So we should be very. Soon after, the price was well up about 70 pips and we. What could be done not to lose this trade which immediately turned profitable.
We could take those 70 pips trusting our intuition and experience — not bad for. But this approach is beyond the discussion for the moment. Within the basic system principles we could do two things. When you see that the price is going nowhere — find the support level here it. When the candle closed below this level,.
When the trade was stopped we could immediately reopen it with the same. But since there were no clear signals on the H4 chart it. You should have good discipline to use virtual Stop-Losses. If you hate stops — trade with very small lots and without virtual stop-losses. If not — you will get the. It could be a trend, and. If you chose to trade this system — you can use your other favorite indicators to. More over, it is very advisable to use all your. But if you use your indicators for signals — it will be absolutely different system.
Share your opinion, can help everyone to understand the forex strategy. Waqaar Hussain Thursday, 22 October Thanks for this. Can you kindly email me the mql files - phucfxduong gmail. Pablo Pretkus Friday, 17 August Todo el mundo busca de alguna manera, ganar con los altos y bajos, me interesa mucho!!
Egbert Saturday, 02 September Can you kindly email me the mql files - snowpido gmail. King Wednesday, 16 November Thanks for the zig zag , its good, may i request an mql file, to edit on it. Andrea Saturday, 21 May MadaForex Friday, 07 November Thomas Tuesday, 29 October I can't understand what is 'b. Is it a separate setup? Zig Zag Trading system.
Sometimes the fish is lost, sometimes it is too small, but the real fish lovers will always have their catch! This approach has the greatest temptation which is trying to find the exact reverse point of every swing. All the ZigZags only measure the possibilities and do not serve as signals. Basically we determine the entry and stop levels and follow mechanically. When you get accustomed to this primary principle you will be able to refine your trade paying attention to the general market mood, patterns, divergences, etc.
The system can be adapted for the 4-hourly charts as well. Please note that this forex strategy may not be suitable for beginners as some of it requires strict trading discipline. If you are a beginner and you continue working with this system on a demo account it will be a perfect training of your imperturbability. Chart Setup This Trading system uses 2 timeframes — a 1 hour chart H1 and a 15 minute chart M15 , or optionally a 30 minute chart M30 and 4 hour chart H4.
The trading situation is estimated mainly on the H1 chart and checked on the H4 chart. They belong to ZigZag1 indicator. When the price is moving further this indicator shows with the little arrows where the first reverse signal appeared and how many times it was repainted. Zig Zag Trading System. To avoid the sound of the alert line — select the line with the double click and move it to some other place. The M15 charts are usually minimized. Traing System Rules The essence of this Forex strategy is that we open trades when a candle closes at a certain level.
Then you can wait for the price to be fixed at the control level. Entry Rules We assume that every reverse movement can start when indicated by the arrows of our ZigZags and will continue until the appearance of a ZigZag arrow in the opposite direction.
Evaluate its significance — check if there is a corresponding arrow on the H4 chart. If the H4 chart does not have a similar arrow yet — The continuation movement is very probable. If the H4 chart does not have a similar arrow yet but you have doubts about the trend strength — Wait. An interactive Web Demo to show you what is Forex Tester and how it can help you to become a better trader! Download Free Desktop Application.
Test your trading strategies at sonic speed on 20 years of real historical data. In fact, indicator ZigZag is a graphics filter to simplify the visual picture of the price movement. It does not modify the price data, performs a minimum of the mathematical calculations and is considered a signal tool for analyzing trend market. Its key points are formed only with the strong price movements above the set parameter , and small fluctuations are eliminated.
This allows you to determine the main points of the turn and to identify the emerging graphics and wave structures; sections of trend movement connect significant extremes on the chart. The main task of indicator is to reveal the trend sites on the price chart and to estimate the probability of a turn or continuations. While the calculation the most important extremes are filtered by the usual comparison of the current dynamics with the ZigZag parameters.
ZigZag doesn't predict the behavior of price in the future, and only indicates considerable changes in past — for this reason in its calculation prices Close are used. Indicator builds lines only according to actual data, the result of the graphical analysis looks like a broken trend figure on the price schedule.
If the movement of the price exceeds the established values, then on main schedule the corresponding extremes will be designated, otherwise ZigZag won't pay attention to them. But if the indicator nevertheless has connected two extremes into a straight line, then this site of price schedule can be considered «confidently» trend. For example, the calculation formula at first «looks for» price minimum corresponding to Depth parameter conditions see below and fixes it on the graphic.
Trading signals of the indicator ZigZag. The local minimum will be updated until market conditions for a turn appear: the price has to go against the current direction by the step size. Then indicator ZigZag begins to look for a local maximum, at the same time it investigates period consisting of the candles set in Depth variable again. From this point of view, we recall: indicator ZigZag allows «redrawing» entire graphic design with strong price rolls. The last forming section can change its direction and length depending on the current price changes.
This can be a serious problem for short-term trading. The standard version of the indicator can be found in any trading platform, names of the parameters in different versions can differ, but three basic filters surely are present at settings. They define what extremes the mechanism of calculation will consider significant and, respectively, to connect these sites trend lines see How To Use ZigZag indicator.
There are no strict rules for the choice of parameters, but, as a rule, settings are by default rather balanced, and are recommended for medium-term trade in the most popular assets. Standard version of the ZigZag indicator. Key parameters for non-standard assets or trade conditions can be changed, but you shouldn't be fond of the experiments too.
The long and short step of the ZigZag indicator. It is beneficial to use versions of the ZigZag with a different color for lines for bullish and bearish trends. Many modified versions can be found on the network, but more additional parameters indicator has, more difficult it is to identify its signals. Indicator ZigZag has a wide range of the applications, despite the fact that it does not provide traditional, explicit entry points. ZigZag and wave patterns. Classic «Butterfly Gartley» on ZigZag.
Please, keep in mind: the last not completed section of the ZigZag line is always in dynamics. The main logic of the ZigZag indicator. In the trend strategies, the ZigZag is always used as a trend definition tool see Using Indicators , so it works fine with the price channel indicators such as Bollinger Bands:. This information helps to choose the direction of the transaction and establish optimal Stop Loss, which steadily saves a trader from possible losses. A different application of the indicator conflicts with the main calculation mechanism, so it is recommended only on timeframes from H1 and higher.
ZigZag: examples of the specs. The indicator guarantees approximately the same accuracy on any trading asset, but we should remind that its calculation does not use smoothing or averaging mechanisms. Is that any price shots cause an incorrect response and «break» ZigZag lines, that is, its information cannot be trusted during periods of a speculative market. ZigZag is an effective tool for assessing the current market position and well complements any trading strategy. Thanks to it, a trader will not be distracted by small price fluctuations and will not miss the global reversal.
It is recommended use actively for both the beginners and professional traders. After all the sides of the indicator were revealed, it is right the time for you to try either it will become your tool 1 for trading.
In order to try the indicator performance alone or in the combination with other ones, you can use Forex Tester with the historical data that comes along with the program. Simply download Forex Tester for free. In addition, you will receive 21 years of free historical data easily downloadable straight from the software.
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