The ZigZag indicator is primarily used to identify significant highs and lows in the price chart, which helps traders filter out market noise and focus on important price movements. Here's how it identifies highs and lows:
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Highs: The ZigZag indicator marks a high point when the current price exceeds the previous high by a predefined percentage or number of points. Once this condition is met, the ZigZag indicator plots a point at that high price level.
Lows: Similarly, the ZigZag indicator identifies a low point when the current price falls below the previous low by the same predefined percentage or number of points. Once this condition is met, the ZigZag indicator plots a point at that low price level.
 
By connecting these high and low points, the ZigZag indicator creates a zigzagging line on the price chart. This line helps traders visualize the most significant price movements while filtering out smaller fluctuations that may be irrelevant to their analysis.