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.

BREAKING DOWN '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. Why is the Zig Zag indicator important for traders and analysts?

    Learn what the zig zag indicator is, and how traders and investors use it to help them identify when the trend of a security ... Read Answer >>
  2. What is the Zig Zag Indicator formula and how is it calculated?

    Learn what the zig zag indicator formula is and how it is calculated while learning how important it can be in your trading ... Read Answer >>
  3. How do I use the Zig Zag Indicator to create a forex trading strategy?

    Take an in-depth look at how to apply the Zig Zag indicator to a forex trading strategy. See why many traders use the Zig ... Read Answer >>
  4. What are the best technical indicators to complement the Zig Zag Indicator?

    Discover how investors use other technical indicators to complement the zig zag indicator to make confident predictions about ... Read Answer >>
  5. What is a common strategy traders implement when using the Zig Zag Indicator?

    Learn how traders use the Zig Zag indicator in stock trading and understand how to use the Zig Zag and the Fibonacci retracement ... Read Answer >>
  6. Why is divergence between indicators important for traders?

    Learn what technical analysts mean by a "divergence" between indicators, and determine why a divergence could be a sign the ... Read Answer >>
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