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Hello John
and thanks for your comments.
Right: Zigzag is very popular indeed and the reasons for that are
perfectly understandable.
Its indications are crystal-clear, it is so close to prices that
its end points actually coincide with the prices themselves,
it is very low level and it can be used effectively in almost
every analytical study (waves, patterns, trends, you name it).
The Double Tops and Bottoms you mentioned are just examples. As you said
yourself one can also detect triangles, pennants, flags, head and shoulders
etc.
As long as the user understands the last leg's issue and is ready and able
to
deal with it, the zigzag becomes really a great tool.
Spyros
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Message: 6
Date: Thu, 14 Aug 2003 22:28:41 +0000
From: "John Doe" <ms001122@xxxxxxxxxxx>
Subject: Re: Re: The ZigZag Debate
Hello All,
Little did I know that my small post to Dusant about the ZigZag would excite
such a response! Some great points were made, esp. by "superfragilist". I
also want to say hello to Spyros - I learnt a lot about the ZigZag indicator
from your article on validation. I apologise for any featjers that may have
been ruffled; that was certainly not my intention.
>From the posts it appears:
- a lot of people have tried, many apparently unsucessfully, to use the ZZ
indicator; this is understandable as its a tricky indicator and Metastock's
online help on it is next to useless
- if your ZZ signals are changing daily or disappear after a few days (as
Dusant says), then you are not using ZZ in the correct formulation
- no indicator should be used indiscriminately; this is especially true for
a notoriously tricky indicator like the ZZ
- however, there are selective instances where ZZ can be very useful; the
example I had given in my original post was of a DoubleTop and that is one
of the few "valid" places where you can use ZZ (in my opinion). Why? If you
think about a DoubleTop, first there's an initial peak, then a pullback (of
a particular %), then another peak (close to the first peak) and then a
breakdown below the last pullback. If you use the ZZ (of appropriate %),
then only the last leg is dynamic; the 2 peaks and the pullback (trough)
inbetween the 2 peaks are already "sealed" by the ZigZag. In this situation,
the ZZ of appropriate % would correctly indicate the DoubleTop; however, ZZ
of a much larger % will not and for that situation actually the last 2 legs
may be dynamic, not just the last leg. The trick is to use ZZ of various
%ages in 'select' situations like DoubleTops to capture the moves (same
reasoning also applies to DoubleBottoms, and with slight modification, to
Triple Tops and Bottoms, Head & Shoulders, etc.)
The example I had mentioned was of INTC having a completed a DoubleTop on
8/8/03, using the 4% ZZ (best way to cut out noise is to choose same colors
for price bars as the background so thay "disappear" and then plot the ZZ
indicator of appropriate % - you will then clearly see the price swings).
Plot a chart of INTC as described above with a 4% ZZ; the DT will be
evident. Similarly, plot a chart of DELL with a 3%ZZ, and you will see
another DT that completed on 8/5/03.
Again, use ZZ carefully and only in select situations (not indiscriminately
- its NOT the holy grail!!!), understand what you are doing and you will
discover many good trades. Happy trading to all.
JD
[Any mention of specific symbols is strictly for educational purposes and is
NOT a recommendation to buy or sell. Trading is risky in the best of
situations; on top of that, if you don't even know what you are doing, you
are doomed to failure. All indicators can, and DO, fail - that's just the
way it is; accept the fact.]
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