The Zig Zag indicator shows past performance trends and only the most significant changes. It does this by filtering out any changes less than a specified amount.
The Zig Zag indicator is used primarily to help you see changes by highlighting the most significant reversals. Understand that the last segment in a Zig Zag chart can change based on changes in the underlying plot, price being only one example. That is, a change in a security's price can change a previous value of the indicator. Since the Zig Zag indicator adjusts its values based on subsequent changes, it has perfect hindsight into what prices have done. Do not try to create a trading system based on the Zig Zag indicator, as it to be used to illustrate historical patterns.
The Zig Zag indicator is calculated by placing imaginary points on a chart when prices reverse by at least the specified amount. Straight lines are then drawn to connect these imaginary points. Any changes in prices that are less than the specified amount are ignored.
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