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In Elliott Wave Theory, diagonal patterns are specialized wave structures that often form in the impulse or correction phase. They come in a few varieties, each with distinct rules and characteristics. Here's a breakdown:
1. Leading Diagonal (Reading Diagonal)
- Location: Forms typically in wave 1 of an Impulse or in wave A of a Zigzag.
- Structure: Follows a 5-wave structure where each wave tends to form in a zigzag pattern.
- Rules:
- Wave 2 must have a zigzag pattern and cannot overlap the start of Wave 1.
- Wave 3 should exceed the peak of Wave 1.
- Wave 4 cannot overlap Wave 2's low point and usually forms in a zigzag.
- Wave 5 must form higher than Wave 3 and cannot be truncated (or "cut off").
2. Ending Diagonal
- Location: Generally found in the final position—wave 5 of an Impulse, wave C of a Zigzag, or wave C of a Flat correction.
- Structure: Like the leading diagonal, it's a 5-wave structure, with each wave forming in a zigzag.
- Rules:
- Wave 2 is a zigzag and does not overlap Wave 1's start.
- Wave 3 surpasses Wave 1's peak.
- Wave 4 cannot overlap Wave 2’s low point.
- Wave 5 can be truncated and does not need to exceed Wave 3.
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3. Extended Diagonal
- Sometimes, diagonals appear in an extended form with one wave (typically Wave 5) stretching significantly.
- Rules:
- Wave 1 is the shortest wave.
- Wave 3 is longer than Wave 1 and shorter than Wave 5.
- Wave 5 is the longest and may extend past the trendline.
- In an extended diagonal, Wave 5 cannot be truncated.
4. Contracting Diagonal
- Wave 1 is the largest wave, setting the trend.
- Wave 3 cannot be the shortest.
- Wave 5 is the shortest wave, and it may extend or stay within trendlines.
- In a Reading Diagonal, Wave 5 cannot be truncated, while in an Ending Diagonal, it can be.
These patterns help traders anticipate trend changes and form part of broader market cycle analysis. Recognizing each diagonal type and its specific wave rules can enhance analysis accuracy in volatile or corrective markets.
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