ZigZagZigZag is not an indicator in and of itself, but rather serves to filter out random noise and compare relative price movements. ZigZag can be set to acknowledge minimum price changes and ignore those that do not fit the criteria. The minimum price movements are set in percentage terms and can be based on either the close or high/low range.
Setting ZigZag to 10% gives a line that only reverses after a change from high to low of 10% or greater. If a stock traded from a low of 100 to a high of 109, the ZigZag would not draw a line because the move was less than 10%. If the stock advanced from a low of 100 to a high of 110, then the ZigZag would draw a line from 100 to 110. If the stock continued on to a high of 112, this line would be extended to 112 (100 to 112). This line continues until the stock declines 10% or more from its high - in this instance, it would have to decline 11.2 points to 100.8, to reverse and draw another line.
ZigZag is useful in filtering out volatility and daily price fluctuations. If price movements smaller than 5% are deemed insignificant, then the ZigZag can be set at 5% and all movements less than 5% will be ignored.