Zig Zag demonstrates past performance trends and only the most important changes. It filters out all changes less than a specified amount. First, the Zig Zag indicator is used to help you watch changes by highlighting the most essential reversals. Note that the last segment in a Zig Zag chart can change based on changes in the basic plot, where price is just one of the examples.
Do not develop a trading system based on the Zig Zag indicator, as it to be used to highlight historical patterns. A change in a security's price can change the indicator's previous value. As the Zig Zag indicator adjusts its values based on subsequent changes, it has wonderful estimation of previous prices.
To measure the Zig Zag indicator place imaginary points on a chart when prices reverse by at least the specified amount. To connect the imaginary points use straight lines. Then ignore any changes in prices that are below the certain amount.