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Automated Trading Championship 2012: Applying ZigZag for Analysis

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MetaQuotes Software Corp.
MetaQuotes Software Corp.  

Each newcomer wants to create a trading system capable of making maximum profit on each price movement. As time passes by, traders gain more and more experience finally reaching more realistic expectations and abandoning their dreams to buy exactly on the very bottoms and sell on the very tops. Everyone knows that it is impossible to trade with the accuracy of ZigZag indicator often shown on history data. But it is possible enough to use ZigZag to calculate the virtual maximum profit...

Zigzags Are Different

All traders know about this indicator and it is impossible to find even a single trader who has not used it at least once. Some traders liken ZigZag to Elliott waves, some use it to obtain objective data on the current market state. Each developer of automated trading systems has his or her own idea about ZigZag.

The terminal's standard delivery contains two types of this indicator - standard one for several generations of MetaTrader terminals ZigZag and its color version ZigZagColor. Over the years, many attempts have been made to improve this indicator. Perhaps, no one knows the exact number of versions, except for Eugeni Neumoin, developer of ZUP complex.

We have decided to use ZigZag from the standard delivery as a tool for a simple analysis of the Automated Trading Championship currency pairs. So, today we will finally answer the question that we could not answer earlier due to lack of time or skills: "How much can you earn with ZigZag (in theory, of course)?"

Virtual deals on EURUSD based on ZigZag indicator

What and How Have We Measured?

The Championship audience, as well as everyone interested in algo trading, was always curious about how many Championship participants trade some definite symbol or timeframe. Therefore, we have examined all 12 currency pairs that were available at the Automated Trading Championship 2011 and used ZigZag to calculate the following parameters:

  • number of ZigZag bends,
  • maximum possible profit when trading 1 lot,
  • average bend length.

Calculations have been made on the period from October 1, 2011 to December 25, 2011, which roughly covers the last year's Championship. Calculations have been made for twelve currency pairs on 8 timeframes from M1 to H4 inclusively. Larger timeframes have not been considered, as they were not so popular among the participants of the Automated Trading Championship 2011. We also wanted to know if there any correlation between selection of a currency pair and its characteristics in this review.

Read the full article on the Championship's website - Applying ZigZag for Analysis.

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