Zig-Zag Lines

Zig-Zag lines are based upon the tendency that price has to move between a trough (in the trough analysis) and a peak (in the the peak analysis) of the same magnitude, and can be useful for clarifying price movements. The Zig-Zag tool helps us to understand the shapes that cycles are going to form in the market. 

To use the zig-zags in Sentient Trader you must make sure that you have a Trough&Peak analysis on your chart. Then you must open the dropdown zig-zags submenu and click on "Calculate zig-zags". It will then be possible to display the zig-zags for the different cycles.

The Zig-Zag tool provides us with a three leg move down from a peak of a particular cycle to the trough of that same cycle.

• The first leg will be a move down to the greatest magnitude cycle that must form a trough on the way down to the target trough.
• The second leg will be a move up towards the greatest magnitude cycle that must form a peak before the target trough.
• The third leg is the final move from the peak reached during the second leg down to the target trough.

There are 3 statistics provided for each cycle. They are:

• Line %: this is the point at which the line which connects the peak and trough (the line from the start to the end of the zigzag pattern) is crossed by the "crossing line" or 2nd leg of the move. 3 numbers are provided, one standard deviation below the average, the average, and one standard deviation above the average. If a zigzag has proved reliable, then the average should be very close to 50%, and you would expect a narrow range shown by the standard deviation.
• Cross %: this is the point at which the "crossing line" or 2nd leg of the move is crossed by the primary line which connects the peak and trough (the line from the start to the end of the zigzag pattern). Here too 3 figures are provided, one standard deviation below the average, the average, and one standard deviation above the average.
• Valid %: a zigzag is considered valid if the move from a peak to a trough presents 3 clear legs which move down (descending highs and lows) , and the move from a trough to a peak is considered valid if it presents 3 clear legs which move upwards (ascending highs and lows). The higher the valid percentage the more accurately the analysis reflects price action.