How to Trade an Ending Diagonal
11/26/2013 6:00 am EST
Senior analyst Jeffrey Kennedy of Elliott Wave Junctures demonstrates how to trade an ending diagonal, which is a high-confidence Elliott wave pattern.
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.
Watch this four-minute video where I explain more:
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.
By Jeffrey Kennedy, Editor, Elliott Wave Junctures