12/21/2022 |
TrendSpider Software Update: New Zig Zag Indicator Levels
Hello, traders, and welcome to another software update from your friends here at TrendSpider! In this update, we’re happy to announce the addition of Levels to the Zig Zag indicator. Details after the jump!
Recently, we rolled out an update to our ‘Chart Patterns’ tool that allows traders to automatically plot Double Top and Double Bottom chart patterns, as well as scan for multiple different setups using these patterns. The underlying functionality that makes Double Top and Double Bottom discovery and scanning possible is the update we’re announcing today; The addition of levels to the Zig Zag indicators.
Zig Zag, Explained
For those unfamiliar with the Zig Zag indicator, it’s a simple, yet powerful indicator designed to remove the noise from the chart and only plot the major trend reversals. By only plotting these specific reversal points, traders are given a clearer idea of where the price is in relation to the current or previous trend(s) as well as what the trend is at any given time.
In the parameter edit box of the Zig Zag indicator, you will now see a new drop-down menu option labeled ‘Levels.’ When ‘Yes’ is selected, traders are offered the ability to customize horizontal levels that are drawn from the last 5 pivot points starting from the most current pivot, which is labeled ‘A’, and going back four additional pivots labeled ‘B’, ‘C’, ‘D’, and ‘E’.
The new Zig Zag levels feature, albeit quite simple, actually holds a powerful key, especially for traders who focus on price action and trend analysis. If you’re interested in adding a Zig Zag level to your scans or alerts, you can do so by selecting the ‘Zig Zag’ indicator and then selecting the level you wish to define. The available options can be seen in the image below.
With these simple options, you can now define pivot levels in relation to one another, indicators in relation to pivot levels and even price in relation to pivot levels! This functionality opens up the ability to scan for many complex patterns that were nearly impossible to easily scan for before. Let’s break down a few different ways this new functionality can be used!
How To Utilize Zig Zag Levels
Head & Shoulders Pattern
The head and shoulders pattern is a very well-known chart pattern consisting of a high, a higher high, and a lower high which serve to act as the left shoulder, head, and right shoulder, respectively. Previously, scanning for this pattern was quite difficult simply because the time it takes for this pattern to form can vary dramatically across tickers and time frames. That being said, the new Zig Zag levels allow for easy discovery of head and shoulders patterns!
In the below example, the Zig Zag indicator and its aforementioned horizontal levels are shown on a weekly chart of NVS. As mentioned above, the five most recent pivots are labeled from A to E.
Pivot ‘D’ is the left shoulder, pivot ‘B’ is the head, and pivots ‘E’ and ‘C’ loosely define the neckline. At pivot ‘A’ a new low is made relative to the neckline, which sets up the creation of a right shoulder. Since we know that the shoulders of a head and shoulders pattern tend to be nearly the same level, we can begin to anticipate that when the price comes back to test pivot ‘D’, it should have a reaction and potentially, even, a failure.
In order to find tickers meeting these particular criteria, a few conditions that need to be inputted into the scanner include:
- Price is ‘within range’ of Zig Zag level ‘D’
- Zig Zag level ‘A’ is ‘less than’ Zig Zag level ‘C’
- Zig Zag level ‘B’ is ‘greater than Zig Zag level ‘D’
To get you started, we’re happy to include this shared scanner that looks for head and shoulders patterns on the daily time frame. It does include some additional filters, so feel free to create your own copy and alter it however you see fit!
Inverse Head & Shoulders Pattern
The inverse head and shoulders pattern is a carbon copy of the standard head and shoulders pattern mentioned above, just flipped in reverse. In the below example, we see a picture-perfect inverse head and shoulders pattern forming on the daily chart of WFC.
In order to find tickers meeting these particular criteria, a few conditions that need to be inputted into the scanner include:
- Price is ‘within range’ of Zag Zag level ‘D’
- Zig Zag level ‘A’ is ‘greater than’ Zig Zag level ‘C’
- Zig Zag level ‘B’ is ‘less than’ Zig Zag level ‘D’
Again, to help get you started, here’s a shared scanner that looks for inverse head and shoulders patterns on the daily time frame.
Basic Uptrend Pattern
There are many ways that traders define uptrends, but few are purer than simple price action conditions. If the price is making higher highs and higher lows, it’s in an uptrend. If the price is making lower highs and lower lows, it’s in a downtrend. In the below image, we see the daily chart of PWR, which is in a very clear uptrend.
- Zig Zag level ‘A’ is ‘greater than’ Zig Zag level ‘C’
- Zig Zag level ‘C’ is ‘greater than’ Zig Zag level ‘E’
- Zig Zag level ‘B’ is ‘less than’ Zig Zag level ‘D’
- Zig Zag level ‘B’ is ‘greater than’ Zig Zag level ‘A’
If you’re interested in utilizing this scan on your own, here’s a link to download the shared scanner we made to find this chart!
Basic Downtrend Pattern
As mentioned above, the most basic definition of a downtrend is when the price is making lower highs and lower lows. A great example of a clear downtrend is pictured in the daily chart of SMG below.
By utilizing the Zig Zag levels, we can now also define a downtrend using the pivot levels and their relationship to one another. In the chart above, we see:
- Zig Zag level ‘A’ is ‘less than’ Zig Zag level ‘C’
- Zig Zag level ‘C’ is ‘less than’ Zig Zag level ‘E’
- Zig Zag level ‘B’ is ‘less than’ Zig Zag level ‘D’
- Zig Zag level ‘C’ is ‘greater than’ Zig Zag level ‘B’
If you’d like to scan for charts in downtrends like the one above, here’s the shared scanner we made to find it!
As always, we do hope you find this new update helpful for your analysis! If you have any questions about how to utilize the new Zig Zag levels, feel free to reach out to our support team via the ‘Contact Us’ button in the bottom right-hand corner of your chart!
