The Zigzag indicator is a series of lines connecting significant price top and bottoms, plotted by price. The price change parameter, 12 by default, determines the percentage for the price to move, in order to form a new leg, ignoring values under that given value. Therefore, the indicator reflects only the most significant changes in price, filtering short term noise or corrective movements inside a trend.
On its own, this indicator gives no trading signals, it just gives objective information regarding the chosen parameters. The best use for this indicator is to analyze historical data, as is not recommended for any kind of market forecast. Remember the last leg of the indicator is always under development and may vary depending on price changes.
When analyzing historical data, a combination of Zig-Zag and Fibonacci retracements helps traders determinate the percentage of corrective movements a certain pair could develop when moving in trend. It is also an easier introduction to Elliot Waves since it makes it easier to visually determine market movements.
Not recommended for time frames smaller than daily.