GBPAUD DAY ZIG ZAG STRATEGY

Step #1: Set the ZigZag indicator settings at 20 for the Depth and 5% Deviation
Firstly, we want to make sure the ZigZag tool will only show the more significant swing high and swing low points in the market. For this, we have to use at least 20 periods for the Depth and 5% deviation to accurately display the market swings.
Step #2: Plot the Fibonacci Extension line once the first two swing waves are established.
In order to plot the Fibonacci Extension line, we need three points of reference. As soon as the first two waves of the Zig Zag pattern are developed, we’re offered with three swing levels that we’re going to use to draw the Fibonacci extension levels.
The reason why we use the Fib extension levels is to try to anticipate where the last swing wave of the Zig Zag pattern will be formed.
The zig zag indicator will only mark the swing low as being formed too late for us to rely and base our trades alone on this indicator. This is the main reason we employ different trade tactics to anticipate where it’s more likely for the zig zag pattern to end.
Step #3: Wait for the third wave to terminate between 0.618 – 0.786 or between 1.0 – 1.272
The reality is that market symmetry doesn’t happen that often. The AB=CD pattern requires a lot of precision in order to have all the conditions for this pattern to be valid.
Throughout our backtesting software, we have found out that the third wave of the zigzag pattern ends either between 0.618 – 0.786 or between 1.0 – 1.272.
Since we can’t know for sure where the third wave will end, we’re going to employ one of our favorite trade techniques to spot a swing point in the market.
Step #4: Wait until you have a candle with a higher low on the right and the left. The bar from the right needs to break above the bar on the left.
The three bar pattern to spot a market swing point is quite easy.
All you need to do is to wait until you have a candle that has a higher low on both the left and the right side of it. In order for this three bar pattern to be confirmed we also need the bar from the right to break above the high of the bar from the left.
Step #5: Zigzag Trading Strategy: Buy at the close of the three bar pattern
After the three bar pattern is completed, we don’t want to lose any more time, and we go buy at the market.
Note* We use the three bar pattern to anticipate swing market points with all of our trading strategies.
Step #6: Hide your protective Stop Loss below the three bar pattern.
The stop loss is going to go below the three bar pattern. Your stop loss may be a little bit bigger depending on the time frame you’re trading.
You want to make sure that the three bar pattern where your stop loss goes maintains at least a 2% risk.
You don’t want to risk more than 2% of your account in any given trade.
Step #7: Take profit equal 2 or 3 times more the Stop Loss.
Now, where’s our profit target going?
The classical ABCD pattern essentially keeps you at a 1:1 risk reward ratio. Also, a lot of the times with the ABCD pattern, you’ll see it pretty frequently that those targets areas are front runned.
However, when you trade with the Zig Zag indicator, you’re able to capture two or even three times more the risk taken.
Note** the above was an example of a BUY trade using our Zig Zag trading system. Use the same rules for a SELL trade – but in reverse.
PM me if you would like to read the complete strategy.