Big Be » Mon Dec 17, 2012 4:14 am wrote:Researching ZigZag outside of the Empty4 world, you will see that before Empty4, ZigZag was designed in a very different way than the ZigZag in Empty4. Empty4's ZigZag is looking for the high and low of the last n bars, with a couple extra rules, as will be explained later. Originally ZigZag looked at price movements up and down. It looks at highs and lows, but with a price move percentage filter. I quote well-written selections from the Stockcharts.com website:
"ZigZag
"Introduction
"The ZigZag feature on SharpCharts is not an indicator per se, but rather a means to filter out smaller price movements. A ZigZag set at 10% would ignore all price movements less than 10%. Only price movements greater than 10% would be shown. Filtering out smaller movements gives chartists the ability to see the forest instead of just trees. It is important to remember that the ZigZag feature has no predictive power because it draws lines base on hindsight. Any predictive power will come from applications such as Elliott Wave, price pattern analysis or indicators. Chartists can also use the ZigZag with retracements feature to identify Fibonacci retracements and projections."
"Calculation
"The parameters box allows chartists to set the sensitivity of the ZigZag feature. A ZigZag with 5 in the parameter box will filter out all movements less than 5%. A ZigZag(10) will filter out movements less than 10%. If a stock traded from a reaction low of 100 to a high of 109 (+9%), there would not be a line because the move was less than 10%. If the stock advanced from a low of 100 to a high of 110 (+10%), there would be a line from 100 to 110. If the stock continued on to 112, this line would extend to 112 (100 to 112). The ZigZag would not reverse until the stock declined 10% or more from its high. From a high of 112, a stock would have to decline 11.2 points (or to a low of 100.8) to warrant another line."
The webpage has more info and example charts:
http://stockcharts.com/school/doku.php? ... ors:zigzag
Sometimes the above principle is called a retracement indicator, and sometimes Fibonacci is mentioned. The original concept is a retracement indicator with a settable percent threshold. The Fibo levels are not a core requirement. And yes it repaints. Empty4's ZigZag repaints mostly “forwards”, that is it resets as price moves higher and higher or lower and lower. Not certain if the original ZigZag behaves similarly, but I suspect it does.
In Empty4's ZigZag, percentage is NOT looked at.
Instead it looks back for the highest Highs and lowest Lows of the past n bars, called 'ExtDepth' in ZigZag.
There is one technical requirement in Empty4 ZigZag's code. This is what distinguishes ZigZag from just a Highs and Lows indicator: To have a lower High, there must be an intervening Low. That is, High – Low – lower High. And to have a higher Low, there must be an intervening High: Low – High -- higher Low. And each High [Low] must “qualify”, it must be the highest [lowest] of the past 'ExtDepth' number of bars. You can see all this if you study it on a chart.
This image shows two examples of lower Highs with intervening Lows (ExtDepth = 12):
In Empty4, most ZigZag derived indicators rely on the ZigZag built into Empty4, so incorporate this different concept called "ZigZag".
These include such indicators as “GP Lauer”, “3_Level_ZZ_Semafor_TRO_MODIFIED_VERSION”, a useful version MrPip and I modified called “3_Level_ZZ_Corrected_V2.1”, various "Semaphore" versions we have put out, and others.
Big Be
