Leading and ending diagonals
The only place wave 4 may overlap wave 1. How to spot the wedge, where it appears, and how to trade the break.
What a diagonal is
A diagonal is a five-wave motive pattern shaped like a wedge. Two trendlines, one through the ends of waves 1 and 3 and one through waves 2 and 4, converge or occasionally widen. Wave 4 overlaps the territory of wave 1, which is allowed here and nowhere else.
Leading diagonal
A leading diagonal appears in wave 1 of an impulse or wave A of a zigzag. Its subwaves usually follow a 5-3-5-3-5 structure. It signals a new trend that is still unsure of itself, so expect a deep wave 2 retracement afterwards.
Ending diagonal
An ending diagonal appears in wave 5 or wave C, where a move runs out of energy. Each subwave is a three-wave structure, 3-3-3-3-3. Once it completes, price usually reverses sharply back to where the diagonal began.
Trading the break
Wait for price to break the 2-4 trendline instead of guessing the top. Place the stop beyond the wave 5 extreme. The first target is the start of the diagonal, which ending diagonals often reach quickly.
Key takeaways
- Diagonals are wedges where wave 4 may overlap wave 1
- Leading: wave 1 or A, 5-3-5-3-5
- Ending: wave 5 or C, 3-3-3-3-3, sharp reversal follows
- Enter on the 2-4 line break, stop beyond wave 5
Analysis and education only, not a recommendation to trade. Trading forex, commodities and crypto carries a high risk of loss.