Construct a zztop from perceptually important points

Seed the path from the visible interval

A zztop is a swing overlay that connects selected extremes with finite trendline segments rather than a conventional percentage or point zigzag. The working object is a swing-chart: the piecewise linear path formed by those connected extremes. It is the working chart, not a forecast.

A swing overlay can be seeded from only the first and last bars of a chosen interval, then refined by repeatedly inserting the bar that sits farthest from the line joining each current pair of endpoints. Those successive extremes are perceptually-important-points. Each newly added vertex is the most visually dominant unused extreme relative to the line that already joins the points already kept.

Measure vertical-distance, then split

The farthest-point step measures vertical-distance as the absolute gap between each bar and the linearly interpolated value of the current segment. It then splits that segment at the bar with the largest gap.

After the split, the same test runs on each new pair of endpoints. The next perceptually-important-points vertex is always the unused extreme that sits farthest from the line already drawn.

Choose iterations or a closeness stop

A user-set iterations count controls how many insertion passes run after the seed pair. A small count keeps only large swings. A larger count adds finer structure.

An alternative stop rule replaces a fixed number of legs with a proximity test. Insertion continues until remaining deviations fall inside a user-set closeness rather than after a preset pass count.

Keep price-scale and the window aligned

Arithmetic versus logarithmic distance must follow the chart pane through the chosen price-scale. Otherwise the selected extremes will not match the geometry the trader is looking at.

Changing the left or right edge of the computation interval changes which extremes are selected. The overlay is interval-dependent and must be restated if the window moves.

The same construction can be drawn on an intraday bar series, as shown when the overlay is applied to an IBM session chart. Testing both the high and the low of each bar when nominating candidates produces a choppier swing path than using a single price series.

Score named formations on the reduced series

Once the reduced turning-point series exists, named formations such as head-and-shoulders can be sought on that series instead of on every raw bar. Head-and-shoulders here is a three-peak structure located after the turning points are already in hand.

A documented three-step matching procedure treats the reduced series as ordered observations and scores a named pattern over a defined interval. That step is pattern-recognition rather than a freehand sketch.

Editorial: The construction supplies a repeatable skeleton. The matching step only scores a named shape on that skeleton. Neither step is a trading instruction.