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How to Identify and Trade an Ending Diagonal

Learn to take advantage of the swift move that follows an ending diagonal

by Vadim Pokhlebkin
Updated: September 05, 2014

Senior Analyst Jeffrey Kennedy is the editor of our Trader's Classroom service and one of our most popular instructors. This article is part 5 in our 6-part series, Find Trading Opportunities in Any Market. You can browse all articles here.

Ending diagonals are fairly easy to identify on your charts, and they lead to dramatic moves in price. Watch Jeffrey Kennedy's video to learn more about this dynamic Elliott wave pattern.

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There are two major types of Elliott wave structures -- motive and corrective. Within these two categories, motive waves include impulse waves and ending diagonals. Zigzags, flats and triangles are all corrective wave patterns.

Today, we are going to examine an ending diagonal in Union Pacific (UNP).

An ending diagonal is an easily discernible wave pattern because it looks like a rising (or falling) wedge. Specifically, it is a five-wave overlapping pattern wherein each wave subdivides into three smaller waves. Also, trendlines connecting the extremes of waves one and three, and two and four, often converge.

Ending diagonals can form only in the fifth wave position of an impulse wave or the wave C position of an A-B-C formation.

Price behavior following an ending diagonal is quite impressive because it tends to be swift, retracing the entire length of the pattern.

The guideline covering the resolution of an ending diagonal tells us that it will be more than fully retraced in one-third to one-half the time it takes the pattern to form, just like it did in this case.

Watch this video where I explain more:

Watch Introduction to the Wave Principle Applied

In this free 15-minute video, EWI Senior Analyst Jeffrey Kennedy explains how to take the Wave Principle and turn it into a trading methodology. You'll learn the best waves to trade, where to set your protective stop, how to determine target levels, and more.

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