Zig Zag Indicator

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DEFINITION of 'Zig Zag Indicator'

A trend following indicator that is used to predict when a given security's momentum is reversing. The indicator is used by traders to eliminate random price fluctuations and attempts to profit when the trend changes. The Zig Zag tool is often used in wave analysis to determine the positioning of the stock in the overall cycle.

INVESTOPEDIA EXPLAINS 'Zig Zag Indicator'

Like many trend following indicators, the disadvantage is that the result is based off past price history and doesn't change direction until a certain move occurs. Given the lag, many traders will want to use the Zig Zag indicator to confirm the direction of the trend rather than timing an entry/exit.

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RELATED FAQS
  1. How do I use the Zig Zag Indicator to create a forex trading strategy?

    The Zig Zag indicator operates as a filter for directional changes in price movements. Technical analysts and forex traders ... Read Full Answer >>
  2. What is a common strategy traders implement when using the Zig Zag Indicator?

    The zig zag indicator follows the trend while reducing noise in a stock or the market. Traders can use it to assist in holding ... Read Full Answer >>
  3. Why is the Zig Zag indicator important for traders and analysts?

    Investors use technical indicators to help them predict with confidence what is going to happen with a security price. These ... Read Full Answer >>
  4. How important are seasonal trends in the automotive sector?

    The automotive industry has some definite seasonal trends, with peak demand occurring in the spring and fall, and lowest ... Read Full Answer >>
  5. What is the difference between a drawdown in banking and a drawdown in trading?

    The term "drawdown" appears in both the banking world and in the arena of trading, but it has completely different meanings ... Read Full Answer >>
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