The Zig Zag indicator is a powerful tool for filtering out market noise and identifying meaningful price swings. By plotting only significant price changes based on a user-defined percentage threshold, the Zig Zag helps traders focus on the broader trend without being distracted by minor fluctuations.
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This makes it especially useful when used in conjunction with moving averages to confirm trend direction or potential reversal zones. On its own, Zig Zag doesn't predict future price movement, but it visually simplifies the chart to make trend patterns and wave structures much more discernible.
Integrating the 3-period and 6-period Simple Moving Averages (SMAs) adds a layer of precision to a trader's strategy. The 3 SMA reacts quickly to price movements and can be used as a trigger line for entries or exits, while the 6 SMA provides a slightly slower, stabilizing influence. When the 3 SMA crosses above the 6 SMA after a Zig Zag swing low, it can be a strong signal of bullish momentum. Conversely, a cross below after a Zig Zag swing high can confirm a bearish trend. This moving average crossover technique allows traders to align entries with the broader price structure shown by the Zig Zag.
By combining these tools, traders create a highly responsive yet filtered system for identifying actionable trading opportunities. The Zig Zag outlines major price turning points, and the SMA crossovers provide precise signals within those broader structures. This synergy helps reduce whipsaw signals and improves timing for both trend-following and counter-trend strategies. Whether trading on shorter time frames or analyzing larger trends, the Zig Zag + 3/6 SMA combo gives traders a tactical edge by clarifying market structure and momentum shifts in real time.
Money Management:
It is important to follow up with this strict rule of investment:
If you have $100 in your account, each open position should be $5 tops
If you have $200 in your account, each open position should be $10 tops
If you have $500 in your account, each open position should be $25 tops
If you have $1,000 in your account, each open position should be $50 tops
If you have $2,000 in your account, each open position should be $100 tops
If you have $5,000 in your account, each open position should be $250 tops
We're currently in our 13th year helping traders become successful in the live markets so we know a thing or two about leveraging a small account into serious wins.
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Risk Disclaimer:
Trading options involves financial risk and may not be appropriate for all investors. The information presented here is for information and educational purposes only and should not be considered an offer or solicitation to buy or sell any financial instrument. Any trading decisions that you make are solely your responsibility. Past performance is not necessarily indicative of future results.
