To calculate the zig zag indicator, plot only those points on a chart where prices reverse by a user-specified amount (e.g. 5% or 8%). Then connect these points with straight lines. The zig zag indicator is virtually useless in day trading.
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The Zig Zag indicator illustrates the most important price reversals by filtering out changes less than a specified amount.
Zig Zag Defined
Interpreting the Zig Zag Indicator
The Zig-Zag indicator is extremely effective in filtering short-term noise and identifying significant trends and significant changes in market prices.
The Zig Zag indicator filters out changes in an underlying plot (e.g., a security's price or another indicator) that are less than a specified amount. The Zig Zag indicator only shows significant changes.
Interpretation ...
The Zig Zag indicator is not just a funny name, he is also quite useful if you want to display tops and bottoms can be. The indicator combines easy targets for the low and high points. This can eg. be used at Elliot Wave counts.
The zig zag indicator is used to ascertain tops and bottoms, highs and lows and possible reversal turning points. It is also used to identify wave patterns and trends. Most people do not use it because of its lagging nature.
To measure the Zig Zag indicator place imaginary points on a chart when prices reverse by at least the specified amount. To connect the imaginary points use straight lines. Ignored any changes in prices which are below the certain amount.
Unfortunately, you can't, because the zig zag indicator does not set the last leg until future prices are already known. The zig zag indicator is useful for getting a sense of overall trend in prices or on a security.
 See also: Zig zag, Indicator, Trading, Pattern, Chart
  
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