Simple ZZ Consolidation Zones Indicator for MT5

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Simple ZZ Consolidation Zones Indicator for MT5

Introduction to the Simple ZZ Consolidation Zones Indicator

One of the most common pattern that occurs in a tradeable market is that of the succession of a market expansion and market consolidation or congestion phase. It is as if market participants want some time to pause and cash in on their winning positions before another strong market pulse would develop.

These conditions present a lot of good trading opportunities for traders who know how to identify market consolidation phases, and the Simple ZZ Consolidation Zones Indicator is a tool that can help traders identify such opportunities.

What is the Simple ZZ Consolidation Zones Indicator?

The Simple ZZ Consolidation Zones Indicator is a custom technical indicator which was developed to help traders identify tight market congestion zones more easily. It is a modified version of the Zigzag Indicator which identifies tighter price swings allowing traders to observe tight price action which typically occurs during a market congestion phase.

Simple ZZ Consolidation Zones Indicator for MT5

How the Simple ZZ Consolidation Zones Indicator Works?

The Simple ZZ Consolidation Zones Indicator has an underlying Zigzag Indicator within its program script. It then modifies its underlying Zigzag Indicator to accommodate for tight price swings. It then plots lines connecting the identified minor swing highs and minor swing lows similar to what the standard Zigzag Indicator does for larger swing highs and swing lows. This creates a tight zigzag like pattern, which would tighten even more during market congestion phases.

How to use the Simple ZZ Consolidation Zones Indicator for MT5

The Simple ZZ Consolidation Zones Indicator has several variables which are geared towards identifying market congestion zones. It also tweaks the sensitivity of the indicator to allow traders to identify tight congestion zones more easily.

How to use the Simple ZZ Consolidation Zones Indicator for MT5

This indicator can help traders identify market congestion zones based on tight swing high and swing low points ranging at roughly the same levels. Users can mark these areas as a market congestion zone. Momentum breakout traders can wait for a strong momentum breakout candle breaking outside of the market congestion zone and trade in the direction of the breakout.

Buy Trade Setup

When to Enter?

Identify a tight market congestion zone with the latest market expansion phase being a bullish momentum pulse. Open a buy order as soon as a bullish momentum candle breaks above the market consolidation zone. Set the stop loss on the support below the entry candle.

When to Exit?

Close the trade as soon as price action shows of a probable bearish reversal.

How to use the Simple ZZ Consolidation Zones Indicator for MT5 - Buy Trade

Sell Trade Setup

When to Enter?

Identify a tight market congestion zone with the latest market expansion phase being a bearish momentum drop. Open a sell order as soon as a bearish momentum candle breaks below the market consolidation zone. Set the stop loss on the resistance above the entry candle.

When to Exit?

Close the trade as soon as price action shows of a probable bullish reversal.

How to use the Simple ZZ Consolidation Zones Indicator for MT5 - Sell Trade

Conclusion

This indicator simply helps traders identify tight market consolidation phases and it is still up to the trader to visually identify and confirm if the market is in a tight market congestion phase.

The momentum breakouts presented here are typically momentum continuation signals wherein another rally is expected after a prior rally and a market consolidation or another drop is expected after a prior drop and a market consolidation. However, there are also some scenarios wherein the market reverses right after a market consolidation phase. As such, market consolidation phases can also be traded as a reversal.

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Simple ZZ Consolidation Zones Indicator for MT5

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