Advanced Elliott Wave: Trading Diagonal Triangles in Intraday Markets

1. Setup Definition and Market Context

Diagonal triangles are five-wave patterns that move with the trend but have a corrective look. They can be either "ending" or "leading" diagonals. This article provides a detailed guide to trading these complex patterns on intraday charts.

2. Ending Diagonals

• Formation: Occur in the Wave 5 position.
• Structure: 3-3-3-3-3 internal wave structure.
• Trading: They signal the end of the larger trend. Look to trade the effective reversal that follows.

3. Leading Diagonals

• Formation: Occur in the Wave 1 position.
• Structure: 5-3-5-3-5 internal wave structure.
• Trading: They signal the beginning of a new trend. Look to trade the breakout in the direction of the new trend.

4. Entry and Exit Rules

• Entry: For ending diagonals, short on a break of the trendline connecting the lows of waves 2 and 4. For leading diagonals, go long on a break of the trendline connecting the highs of waves 1 and 3.
• Exit: The target for the reversal after an ending diagonal is often a full retracement of the diagonal. For a leading diagonal, the target is a effective Wave 3.

5. Real-World Example (ES)

• Ending Diagonal: The E-mini S&P 500 futures (ES) form an ending diagonal in the final wave of a rally.
• Entry: Short on a break of the 2-4 trendline.
• Target: A sharp sell-off ensues, and the trade is highly profitable.