Indicators  |  NOV 2003

The Zigzag Trend Indicator by Spyros Raftopoulos

The Zigzag Trend Indicator by Spyros Raftopoulos Zigzag is a powerful noise filter, but it’s not without its problems. Here’s a technique that incorporates the power of zigzag into a more valid and tradable indicator. The popularity and usefulness of the zigzag indicator can be ascribed to three important characteristics. It is an effective noise filter; it graphically presents the main trend with great clarity; and it is still a very low-level indicator, in that its final interpretation of price is not filtered through one or more algorithms, but is based upon the price itself. While these are important advantages, zigzag’s main disadvantage is its dynamic nature. The indication of a trend’s direction (provided by the “last leg” of zigzag) is revisable, and can therefore be misleading. Further, the indicator cannot be used in mechanical systems, since the backtesting of such systems should exclude any revisable parameters in order to be valid and accurate. I described the problem of the dynamic last leg in my previous S&C article, “Zigzag Validity.” That article also presented my zigzag validity indicator, which can be used to validate the last leg. This article introduces the zigzag trend indicator, which handles the dynamic nature of the zigzag indicator more efficiently. The zigzag trend approach solves the validity problem of the dynamic last leg by incorporating zigzag into a clearly tradable indicator.

by Spyros Raftopoulos