Price action determination based on zigzag

2023-04-05 2023-04-07

What is a Price Action?

Price action is a trading technique that focuses on the price fluctuation (Action) itself to determine the market direction, trend, support and resistance. Price action is considered a very useful forex trading technique because it allows traders to understand the fundamentals of the market and to read the characteristics of the market by looking at charts.

The price action trading method is based on the fundamentals of the market. By accurately reading price movements and patterns, one can determine the direction of the market and determine the timing of trades and entry points. In addition, there are various chart patterns for price action, each of which has its own unique meaning. By accurately understanding chart patterns, you can increase your chances of winning trades.

Price action is mainly known as pattern recognition (Sakata Goho) using the four candlesticks, but in terms of analysis that takes into account price fluctuation patterns without candlesticks, analysis using the zigzag indicator's peak and valley waveforms can also be considered a type of price action. The zigzag indicator is also considered to be a type of price action.

We have developed an extended version of the zigzag indicator and would like to introduce it to you.

Patterns to be detected

Highs rounded up and lows rounded down (BOS)

A higher high is defined as the formation of a new high above the previous high. On the other hand, a new low is formed above the previous low.

In English-speaking countries, these waveforms are often described as BOS (Break Of Structure).

BOS is one of the signs that the market may turn into and continue an upward (downward) trend and is one of the basic patterns in price action.

BOS(High rounding up)

A state in which the rate has crossed the previous high top after hitting the low top, indicating a possible uptrend turnaround and continuation of the uptrend.

- The rate at which a new high is recorded = BOS New high recorded rate = BOS
- ★ : High top on the rise = Higher High
- ★: Low top of a rising low = Higher Low

BOS (low price devaluation)

A condition in which the rate has crossed the previous low top after hitting the high top, indicating a possible downtrend turnaround and continuation of the downtrend.

The rate at which a new low is recorded = BOS
New low recorded rate = BOS
★:Lower Low: Lowest point in a descending trend = Lower Low
★ : High summit on the way down = Lower High Lower High = High peak on the way down.

When such a waveform appears, the market is likely to turn into a rend.

The reason for this is that, for example, in the case of an uptrend, the lows are perceived to be psychologically difficult to fall as they are cut off in stages,

Buying interest is likely to be high (new purchases, purchases to unwind selling positions). (As new highs are formed, market participants gather further in anticipation of further market appreciation.)

This will make it easier for the uptrend to continue.

BOS is one of the very useful patterns in price action, though it is an important sign in determining the direction and trend of the market,

However, the appearance of BOS does not necessarily mean that the market will turn into an uptrend,

When determining the trend of the market, the BOS waveforms are compounded, or other factors are taken into account as well, for example,

It is advisable to make a comprehensive judgment while taking other criteria into consideration.

For example, when the low price rises during an uptrend (previous low < current low), if the current low price is higher than the previous high price, it may be considered that the trend is stronger.

By using the same price action in combination with the results of long and short time legs, or by combining it with indicators such as MACD, etc., it is possible to make the same price action.

While reinforcing trend judgment, the accuracy of trades may be raised by making entries based on signals such as golden crosses (dead crosses).

market reversal

Indicates that the trend has ended and the market has reversed, or that the market may have moved into a range.

In English-speaking countries, it seems to be expressed as CHOCH (Change Of Character).

When a CHOCH forms, many market participants tend to take a cautious stance. Since no trend has been established, buying and selling pressures are often competing with each other, making it difficult to read the direction,

In some cases, price volatility will be small. This requires careful trading until the trend is confirmed.

A CHOCH is determined to have occurred when the rate falls below the rate at which a Higher Low is recorded or when the rate rises above the rate at which a Lower High is recorded.

Indicator Explanation

I have created an indicator based on the above concept.

impression

BOS frequently occurs during strong trends, and CHOCH occurs when the direction is unclear,

I think we have a display that meets our objectives.

However, since BOS occurs relatively frequently and there are many false signals in a range market, etc., it may be necessary to make a comprehensive judgment based on other indicators.

vertex detection

The key point is how each vertex is judged, and ZIGZAG is used for this part.

The depth of the mountains and valleys is adjusted by parameters to determine the direction of the market, either by looking at the major market trends or focusing on the most recent minor movements.

Because of zigzag, once a vertex is recorded, it may be updated (= repainted).

Symbols for each vertex

As shown in the schematic diagram, vertex attributes such as Higher High, Higher Low, etc. can now be recognized at a glance by the color of the vertex.

How to use

In terms of judging the direction of a major trend or entering a range, it is considered effective to watch CHOCH on longer time frames such as the 1-hour and 4-hour time frames.

On the other hand, if it is used as entry timing, it is effective to use the short-term leg because there is a problem of not being able to capture the breakout moment if it is judged with the long-term leg.

It is important to use them for different purposes and applications.

summary

This indicator is available free of charge for those who use the automated trading tool Helios in their real accounts.

We hope you will find this information useful in judging the market environment. Once you are contacted by the service desk, we will provide you with a set of indicators, support documents, etc.

*If you wish to use only the indicator, please contact us individually.

We will continue to compile ideas that may be useful in analyzing the market environment and deliver them as ready-to-use indicators.