Elliott Wave — Diagonal Waves

The second type of motive wave. Unlike impulses, diagonals allow wave 4 to overlap wave 1 — the one exception to the golden rule. They form wedge-shaped patterns and always appear at the BEGINNING or END of a move, never the middle.

What Are Diagonals?

Diagonals are wedge-shaped five-wave patterns that belong to the motive phase (they move in the direction of the primary trend), but they are NOT impulse waves. The key distinction: wave 4 is allowed to overlap wave 1 in a diagonal. This is the only time that overlap rule is broken.

If you're counting and see a five-wave structure with overlap between waves 1 and 4, don't panic — it's probably a diagonal, not an invalid impulse count.

Where Can Diagonals Appear?

Diagonals either begin something or end something. They cannot appear in the middle of a move.

You can also get a diagonal on the wave 5 WITHIN a larger wave (e.g. wave 5 of wave 3), but the principle holds — it's ending that sub-wave.

Two Shapes: Contracting vs Expanding

Contracting diagonal: Widest at the start, narrowest at the end — looks like a falling/rising wedge. Wave 1 is the longest, wave 5 is the shortest. The more common type.

Expanding diagonal: Narrowest at the start, widest at the end — looks like a crocodile mouth or megaphone. Wave 1 is the shortest, wave 5 is the longest. Less common but powerful.

Internal Structure

Each wave within a diagonal can subdivide as either:

• 3-3-3-3-3 (each wave is a three-wave ABC structure) — more common
• 5-3-5-3-5 (actionary waves are five-wave impulses, corrective waves are three-wave) — less common

Both are valid. The 3-3-3-3-3 pattern means every sub-wave within the diagonal is corrective in nature (ABC, ABC, ABC, ABC, ABC), which is why diagonals look choppier and less impulsive than standard impulse waves.

Contracting Diagonal Rules

Leading (Wave 1 or Wave A)

After a leading diagonal completes: Expect a correction (wave 2 or wave B), then a powerful wave 3 or wave C in the same direction. Leading diagonals are the beginning of something — often something big.

Ending (Wave 5 or Wave C)

Same structural rules as the leading version, but it appears at the END of a move. After an ending contracting diagonal completes, expect a sharp reversal in the opposite direction — the entire trend is exhausted.

Expanding Diagonal Rules

Leading (Wave 1 or Wave A)

Expanding leading diagonals are considered riskier than contracting ones, but when they work, they signal the start of a major move.

Ending (Wave 5 or Wave C)

Same expanding structure but at the END of a move. After completion, expect a sharp reversal of the entire preceding trend.

Jesse Livermore's Accumulation Cylinder

The expanding leading diagonal is the same pattern Jesse Livermore called the accumulation cylinder — one of the earliest technical analysis concepts. Livermore identified this expanding wedge shape at the beginning of major trends: wave 1 (small), wave 3 (bigger), wave 5 (biggest) → then the breakout into wave 3 of the larger degree.

Apple on the monthly chart is one of the most famous examples — an expanding leading diagonal formed wave 1 before the stock went on its massive multi-year run. The S&P 500's historical yearly chart shows the same pattern at the start of the secular bull market.

If you ever see that crocodile mouth pattern at the start of a move, it could be the beginning of something very powerful.

Throw Overs

A throw over occurs when wave 5 of a diagonal briefly pushes beyond the trendline connecting waves 1 and 3 (in a contracting diagonal) or waves 2 and 4, before reversing dramatically.

Three outcomes for wave 5 at the trendline:

1. Falls short (truncation) — doesn't reach the trendline
2. Touches the trendline — standard completion
3. Goes beyond the trendline — throw over

Throw Over Characteristics

• After a throw over, price reverses dramatically back in the opposite direction and reverts quickly to where the diagonal began
• The reversal can take one-third to one-half the time it took for the diagonal to form — so if the diagonal took 6 months, the reversal can happen in 2-3 months
• In a leading diagonal throw over: the reversal is simply wave 2 (or wave B), followed by a powerful wave 3 continuing in the original direction
• In an ending diagonal throw over: the reversal is a major ABC correction of the entire preceding impulse — this is the big one

Bear market example: A falling wedge (contracting ending diagonal) with a throw under — price breaks below the wedge, triggers stop losses on everyone buying the falling wedge, then reverses sharply back up through the entire pattern. Classic stop-loss hunt before the real reversal.

Real Chart Examples

Bitcoin COVID bottom: Leading contracting diagonal formed the base → wave 1, 2, 3, 4, 5 with overlap → ABC correction → then wave 3 took off massively

Bitcoin top (2021): Ending diagonal at the top of the entire move → wave 1, 2, 3, 4, 5 with overlap in a rising wedge → followed by the bear market correction

Bitcoin also had an ending diagonal in the C wave of the correction — same pattern but within the corrective phase, ending the C wave before the next impulse up

South32: Expanding leading diagonal → wave 1 smallest, wave 5 longest → crocodile mouth → then correction and takeoff

Apple monthly: Expanding leading diagonal formed wave 1 of the entire secular trend → one of the most famous examples in markets

S&P 500 yearly (log): Expanding leading diagonal at the very beginning of the long-term bull market → deep wave 2 retracement (786) → then the massive wave 3 followed

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