Zig-Zag Trading Strategy

Dear all friends

Hi,

I’m going to share my knowledge and experiences on Zig-Zag indicator and how to trade using it with you all my valuable friends.

Due to no useful content being explained across the internet on this matter, therefore, all contents which is going to be provided is only based on my personal experiences and it might be included some failures.

I hope all traders to be succeeded across the market around the globe.

Be happy and profitable

Introduction

Hello every body

Before getting to know the whole strategy and how to take positions, firstly several points should be noted, and then the nature of the Zig-Zag will be presented, and after getting familiar with Zig-Zag, the way to trade based on Zig-Zag indicator would be addressed. I hope you all friends be patient to get the whole story understood.

Preliminarily, 3 points will be focused on which plays an important role within the story.

 Knowing the trend                

         Money management                

          3-The way to raise the volume of the trade

Good luck

Understanding the conception of the trend

The very first in trading is knowing the dominant trend of the market

I’m greatly pleased to quote from the book of my beloved friend and an experienced person in the market “Duel with the market”:

“The trend is the resultant of the upward and downward market moves which could be considered as bullish and bearish. The trend is actually the foundation and structure of the market movement.

 As you are informed of, the time frame you are going to trade in it, that dominant trend of that TF is made of major and minor tops and troughs, so to trade along with the trend needs to find out/realize major troughs/peaks of that time frame itself in order to take position(s) aligned with those probably future bottoms and tops, while most of the traders have mistaken distinguishing minor swings or entering into position(s) aligned with minors, after the trader got into those trades, upon the chart moves to form a minor peak or trough against his/her trade, the trader would come under a huge psychological stress and will be forcing the trader to close out/liquidate the trade in loss during the minor leg. And or by placing the stop loss in an appropriate point on the chart, would be causing the trade to be hit by the price during that minor swing and again the market will go toward the way we have been thinking of.

Therefore, understanding the majors of the trading time frame could help us in two different ways:

.   .        1-To choose the right way to get in the market

   ..        2-To pick up an appropriate place of the chart to set the stop loss

The Zig-Zag indicator is the tool that could assist us during the correct market trend and majors identification step.

Mr. Azadi has detailed about the trend which I personally recommend you guys has a clear sweep on that book to understand the trend specifically, this the matter most of the traders, whether novice or experienced ones, may have a weakness on recognizing that.

We will discuss it later on.

Good luck

The Money Managment

 One of the reasons most of the traders end to a lot of losses and even margin call is lack of knowledge and observing no rules on money management.
Yet, if a trader observes money managements and how to use it, even if the trades counter to loss, it will be as much as that could be compensated easily by the next trades and the trader will be able to keep trading in a long shot.
Here, we are going to talk about one of the methods in money managements, hoping to prevent huge losses by keeping the observation of the whole story.
In this regard, we are hearing a lot being told that always risk %3 of your money to trade, but there has been a little talking about the way it is being performed.
When it is told that only %3 of the equity must be engaged to risk, it doesn’t mean that for example if you have $1,000 as your equity, you are going to take 0.03 Lot by every trade, but it do means that the amount of Lots must be specified based on the stop loss we are going to set on the trade and the loss must be %3 of the equity, not the amount of the lot in that position.
E.g.: Suppose we are going to enter to a position by %3 while having an account of $1,000.

  Good luck

Up date 19/-6/2014

How to Raise the Volume

According to the Zig-Zag strategy, because the possibility of raising the volume happens frequently, I felt we need to have it noted too.

In the previous subject, using the S/L as a measure to get the volume specified has been taught. Based on our trading strategy, now if we had a chance to raise the volume, what are we going to do according to the money management principles? Should we be neglecting raising the volume  caused by having an open position? Because of we already spend the %3 limit? No! In this case, if we have an open position for example in a $1,000 account which we entered a %3 risk position and in line with the strategy an opportunity to raise the volume is created. We proceed to  risk free the position If we it was possible to do so and the same way will be used to increase the volume, it means according to the last S/L the volume would be set, we have to deduct the money for the S/L if the account was not risk free, then the next volume raising would according to the remaining of the account based on the S/L in pips of the volume which is going to be set.

Example: Suppose that we have a $1,000 account and there is an active open position with a $30 S/L, so the equity now should be calculated according to the very last $970 in the account and if we are going to increase the volume or enter into a new fresh position, and if the S/L was 50 pips and we are allowed to take maximum loss of %3 based on the same money management rule. Now how much would be the volume to be increased?

%3 of $970 means we are allowed to increase the risk $29 and we could set the volume on 0.05 Lot if the position has 50 pips as S/L, and the same way will be done for the next ones.

Instead of closing out the positions which are open and active, just enjoy taking as much as profit and be a friend of the trend and regularly increase the volume.

Goodluck

  NEW POST

 The definition of Zig-Zag

The zig-zag indicator is one that has been placed within the MT4 and its setting is on 3-5-12 by default and definitely I can say that it is one of the most powerful MT4’s tools. This indicator helps the trader to have realization on the current trend of the market. Its movements are based on the price and the volume of the market and how its moves is according to the Elliot Waves principles. As you can see the Elliot wave recognition is so much difficult and somehow complicated, but using this tool it is done as a piece of cake. Each leg of the Zig-Zag is consisted of a cycle waves of Elliot waves within the lower time frames.

One of the points which is making a lot of problems to traders is finding out the end a trend and when this indicator is in overbought/oversold status. That’s because when the zig-zag’s leg appears on the chart is not portending the end of the trend and the traced out leg keeps moving along with the price chart and goes lower or upper till it is saturated (overbought/oversold). Trader who knows how to use Elliot waves could easily count the waves to find out the end of the aforementioned zig-zag’s leg. But traders who don’t, can go one time frame lower counting that zig-zag’s leg to find out whether it is saturated.

Now, the question which comes to our mind is that how many legs for a zig at the current time frame is involved of a zig at the lower time frame to notice a saturation state?

The first point is that the lower tome frames is consisting of odd legs for a zig. For example:

3,5,7,9.

So, we will be looking for odd legs for a zig within lower time frames.

The second point is that the saturation definitely takes place on one of Fibo levels. For example:

In trends %113 and %162 levels is more considered and for the correction waves %50-%88 levels are considered more.

One of the other points that could help with diagnosing the saturation status are support and resistance levels and/or overlapping one of these two levels with one of Fibo levels could notice us from an established zig leg as well.

But there is one thing in our strategy and that is we are going to take positions using signals which are generated by the indicator. And when a buy/sell signal is appeared implicating saturation of the zig itdelf.

Trend or correction - How to distinguish?

As mentioned above, Zigs in an upper time frame is consisting of several Zigs in the lower time frame. During bullish trend To distinguish a trend from a correction for an established leg of a zig, we will go to one time firm lower first letting the very first reversal zig to be established. If the established zig gets lower than the previous leg it means the upper time frame’s zig has ended and we are entering a bearish 

wave. During bearish trends we will be waiting for the first top to be established in the lower time frame, then if that leg was upper than the previous zig, means upper time frame’s trend has ended and we have entered an upward wave.

If the first reversal zig could not break the previous high or low, meaning our zig in the higher time frame is going correction and the trend will get back to its main trend after the correction is completed.

I hope I could have learned you how the zig-zag behaves. Offcourse every indicator and each system has its own weak and strength points. To get the best performance out of any system, it is required to train a lot to find out those weak and strength points.

I‘m willing to start the next discussion on how to take position and using the indicator as well. I hope till then everybody exercises well to more and more realize how this indicator moves, then you will dominate fully to the zig-zag‘s movements.

Thanking you all

Good luck