StockCharts Insider: ZigZag—The Secret Behind the Most Underrated Non-Indicator in Your Toolbox
Before We Dive In…
Finding an “edge” in the markets can mean looking at tools that most overlook, or using a seemingly “common” tool from an uncommon angle. The ZigZag is a perfect example. It’s not the most popular tool. It’s not even an indicator. Yet it has a hidden advantage that no other indicator can touch—IF you know how to use it properly. And that’s today’s “insider” lesson.
A Non-Indicator That Outsmarts Many Indicators
ZigZag is not an indicator. It’s a filter.
Elliott Wave disciples use it frequently. Most other traders? They treat it like the oddball no one wants to stand next to. That’s a big miss. Because ZigZag might be the most underrated tool in your charting toolbox—especially if you care about spotting real trends, swing points, and reversals without the market noise.
What ZigZag Really Does (and Doesn’t)
ZigZag doesn’t predict anything. Instead, it cleans up the mess by straightening out the “drunken walk” that prices often take. It eliminates the small price moves and highlights the bigger and more important swings.
Ironically, this is exactly what makes the future clearer. In other words, it’s a non-predictive tool that makes trends, reversals, and pivots more predictable. Strange, right?
The Overlooked Edge: Mapping the Swings That Count
Price movements may not be certain, but there’s something 100% certain about price movements: they’re made up of swings—up, down, or sideways—and perpetually bigger and smaller swings ad infinitum.
You can look at daily, weekly, monthly, and yearly charts, and so on. You can look at 4-hour, 1-hour, 15-minute, and all the way down to tick charts if you wish. Every time frame will give you a different set of price swings.
Which swings count? The ones you’re trading or analyzing. And you choose these swings by selecting the % parameters to match the swings (or, if you’re an Elliottician, “waves”) that matter to you.
Once you do this, you can see the following:
- Trends: Instantly see whether you’re in an uptrend, downtrend, or sideways range.
- Support and resistance zones: Use swing highs/lows as anchor points to anticipate bounces or breakouts.
- Reversal points: You can anticipate where trending and non-trending conditions may begin or end.
Insider tip: Once you see the picture, you’re not just looking at a forecast; you’re building a trade setup.
ZigZag in Action: Trendspotting Tesla
Take a look at this 2-year daily chart of Tesla Inc. (TSLA). Typically, you’d shift to a weekly chart to get a clearer look at price movements. But I’m going to keep it as a daily chart, in order to demonstrate how ZigZag can make sense of the market noise.
In this chart, I plotted a 50-day Simple Moving Average (SMA), as it is a common trend indicator that, in many cases, will work depending on the circumstances. But here, even the SMA looks confused.
Notice the whipsaws highlighted by the magenta circles? If you’re looking at the price’s position above or below the 50-day SMA to indicate trend direction, you’ll get lost. Even worse, where are the major reversal points marking the onset of a uptrend, downtrend, or sideways movement? Good luck spotting them.
Now, look at the same chart with the ZigZag Line as a filter.
Note this: There is not one single way to definitively measure a trend. There are many ways to do that and some will even conflict. In the end, you have to choose one.
I choose one of the simplest definitions of a trend (and let’s agree to it for now):
- Uptrend = consecutive Higher Highs (HH) and Higher Lows (HL).
- Downtrend = consecutive Lower Lows (LL) and Lower Highs (LH).
- No Trend = a mix of uptrend and downtrend swing highs and lows.
Okay. Now, looking at the TSLA chart above, here’s what it shows you, and remember that this is a 2-year chart, so periods that may seem short may be months long. If you want to see my setting, click here to view my chart.
- Red and Green Bars at the Bottom: Red highlights the downtrends, green highlights the uptrends.
- Yellow Boxes: These highlight momentary periods when a trend has ended, reversed, went sideways, or was just uncertain.
- Swing Points: If you follow the basic trend definition above, you’ll see how the highs and lows indicate trend direction.
- Magenta Lines: These show you the breakout points where price began a new trend. Note the symmetrical triangle pattern at the right (this will eventually break up or down).
Insider Tip: Make It Actionable
How you use ZigZag depends on your personal strategy. But here are a few quick ways to put those swing points to work:
- Breakouts matter: A break in the direction of the trend is a legit entry point.
- Uncertainty = opportunity: When a trend chops sideways or becomes uncertain (think yellow-shaded zones), the eventual breakout can be your early-in ticket.
- Stops with market structure: In an uptrend, swing lows make logical stop-loss levels; in a downtrend, swing highs do the same.
- Trail the trend: Swing points double as trailing stops markers as you ride the wave.
And That’s a Wrap
You just learned why ZigZag—though not an indicator—is still an incredibly potent tool, even for non-Elliotticians. You saw how it cuts through noise, makes trends clearer, spots breakout points, and helps you anticipate reversals. It doesn’t predict the future, but it does something far more valuable: it sobers up market chaos and shapes it into a clear, actionable landscape.
