This code snippet demonstrates how to use the ZigZag indicator to detect trend reversals, specifically identifying Higher Highs (HH), Lower Highs (LH), Higher Lows (HL), and Lower Lows (LL) based on Dow Theory. The ZigZag indicator is used to filter out minor price fluctuations, making it easier to see significant trends and reversals.

percent = 0.5
zzh = ZigZag[percent](high)
zzl = zigzag[percent](low)
itop = zzhzzh[2]
bot = zzl>zzl[1] and zzl[1]0 then
        drawsegment(barindex[1],zzl[1],prevhbar,prevh)
        //HL
        if zzl[1]>prevl then
            drawtext("HL",barindex[1],zzl[1]-atr/2,dialog,bold,16)
        else
            //LL
            drawtext("LL",barindex[1],zzl[1]-atr/2,dialog,bold,16)
        endif
    else
        drawsegment(barindex[1],zzl[1],prevlbar,prevl)
    endif
    lastzz=-1
    prevlbar=barindex[1]
    prevl=zzl[1]
endif

return

This code snippet uses the ZigZag indicator to identify significant peaks and troughs in price data, which are then classified into four categories based on their relationship to previous points:

• Initialization: Set the percentage for the ZigZag calculation and initialize variables for tracking the last peak or trough.
• Detection of Peaks and Troughs: Use logical conditions to determine if the current point is a peak or a trough based on the ZigZag values.
• Drawing Segments: Draw segments between identified points to visually represent the trend changes on the chart.
• Text Annotations: Annotate each significant point with “HH”, “LH”, “HL”, or “LL” to indicate the type of reversal or continuation in trend.
• State Management: Update variables to keep track of the last identified peak or trough for comparison with future points.

This approach helps in visualizing and understanding market trends, making it a valuable tool for technical analysis in trading.