The zig zag indicator is a tool that aims to help investors predict when a financial security is changing trends.
The zig zag indicator helps analysts filter out the short-term, mini-zig-zags that most securities go through, leaving behind only long-term fluctuations.
It's pretty simple when it comes down to it. You choose a percentage of price movements, setting a high and a low. 5% is the default setting, which means price fluctuations of 5% or more (usually using closing prices) would show up in the zig zag indicator chart.
While the zig zag indicator is useful, it’s not predictive, making it not very useful on its own. Other analyst tools like Elliot wave counts and Fibonacci projections and retracements can help analysts get a more accurate picture of what’s to come for fluctuating securities. Well, they try, anyway.