ZigZag is another technical tool available on mt4 and it is not necessary an indicator but rather a mean to smooth out all the candles on your chart. Since is just a line on your chart that turns when the market reverses, it can help you see the bigger picture and spot support/resistance areas.
It is also worth to mention that it has not any predictive power, so using it alone won’t help you spot effective trading signals. Instead, you can use to apply price action strategies, of Elliot Wave theory, or in combination with Fibonnaci levels. It this way, you will avoid all the noise generated by the traditional candles and you will be able to have a clearer picture of the market.
In order to set it up on your chart, go to Insert – Indicators – Custom – ZigZag :
In order to give an example of how you can use ZigZag in your trading strategy, look at our chart below. As you can see we, spotted a resistance area around 1.0620. We’ve marked the spots where the market tested the resistance and it is exactly the same place where the ZigZag turned lower, after testing the resistance.
Also, after the ZigZag turned higher around 1.0495, we’ve market the level as support. Next time the price hit that level, the market reversed and so do ZigZag.