![]() The Zig-Zag indicator is also effective in visually reducing noise and helping the technical trader see larger picture patterns and general market direction. The Zig-Zag indicator is a technical analysis tool that might be used to identify classic charting patterns. The easily identified head and shoulders pattern gave a potential sell signal when price on the right shoulder broke the upward slanting trendline. The chart below of Intel (INTC) shows a classic chart head and shoulder pattern easily seen by the Zig-Zag indicator ($1 retracement): Typically traders might wish to buy in areas where price touched the lower support trendline and sell when prices touched the upper resistance line. The ZigZagSign study filters out minor market moves, showing the price action in generalized form. During the middle of the chart, the Zig-Zag indicator was effective in illustrating that the S&P 500 was in an upward price channel. ![]() ![]() When prices broke resistance, a potential long-term buy was generated. On the left of the chart, the S&P 500 was forming a triangle consolidation pattern. The chart above of the e-mini uses a 5% Zig-Zag retracement value therefore, only price changes of 5% or greater are shown, helping a long-term trader or investor identify important areas of support, resistance, and areas of price breakouts. ![]()
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