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Zigzag trendline trading – Michael Voigt
This drawing tool supports the trading approach of trader Michael Voigt, author of the book Das große Buch der Markttechnik (ISBN 978-3-89879-125-0).
Click the icon to activate the drawing tool. Draw what you consider to be the first phase of the current trend. There is no need to draw the full trend, only draw what you consider to be the beginning of the trend. The platform will continue to draw the trend (zigzag trendline) until the trend reverses.
Drawing the first phase of the trend in a logical way is crucial it determines all other parameters of the strategy. The dedicated section below, "Drawing the zigzag trendline", explains this action in more detail.
The drawing tool indicates 3 zones based
on the zigzag trendline and the current market price. These 3
levels, which Voigt considers crucial, are:
The buy (or short sell) zone. Around this price level positions are opened. The level is drawn as a small coloured zone. Green for the buy zone, red for the short sell zone. The zone will only appear in the chart when the market closes below (above) the sideways zone.
The sideways zone. The sideways zone is indicated by two dotted blue lines.
The end-of-the-trend level. When a candle closes below this level, a bullish trend ends. When a candle closes above this level, a bearish trend ends.
This example shows a bullish trend. The market closed below the sideways zone (2). As a consequence the green buy zone (1) appeared in the chart.
This example shows a bearish trend. The market closed above the sideways zone (2). As a consequence the red short sell zone (1) appeared in the chart.
In Das große Buch der Markttechnik the author proposes his 3 trading techniques: break-out trading, movement trading and trend trading. These trading techniques can be used individually or in parallel. All three techniques use the same buy and short sell zones as indicated in the charts. The difference between the techniques lies in the closing of the positions:
Break-out trading has a very small profit target. Positions are only held for a very short time. The position is closed manually.
Movement trading has no profit target. The position is closed by a special trailing stop. This stop designed by Michael Voigt is based on candlesticks. The stop is called Inside Bar Trailing Stop. If you wish to use this trailing stop, insert it, as usual, via the Designer Dialog window. Afterwards activate the "Tradeguard" on your trading platform. When you open a position the platform will automatically place the stop.
In this example the trader uses the inside bar trailing stop to protect a long position.
Trend trading has no profit target. The position is closed by a special stop. This stop, also designed by Michael Voigt, is based on the zigzag trendline. If you wish to use the zigzag trendline as a stop, either select Long-Stop or Short-Stop when you draw it. Afterwards activate the "Tradeguard" on your trading platform. When you open a position the platform will automatically place the stop.
In this example the trader selects Long-Stop when drawing the first phase of the zigzag trendline.
This example shows a trader with a long position using the stop based on the zigzag trendline. The stop moves up with the zigzag. The position remains open until it is stopped out.
Important: The NanoTrader platform allows users to implement Michael Voigt's approach of combining his three trading techniques into one position; buy 3 contracts, sell 1 manually with a small profit (break-out trading), sell 1 based on the trailing stop (movement trading) and sell 1 based on the zigzag trendline stop (trend trading). Sounds complicated? It isn’t.
Drawing the zigzag trend line
The "only" thing a trader needs to do is draw the initial phase of the trend. At first glance this is simple, but there is more to it. The initial phase of the zigzag determines all other parameters. The location and the span of the initial phase must stand in relation to the time frame in which the trader trades. Also watch these videos:
Note: the drawing tools are not available in the demo. They are reserved for clients.