# 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. | Type | Position | What It Signals | |---|---|---| | **Leading Diagonal** | Wave 1 of an impulse, or Wave A of a zigzag | Beginning of a new trend | | **Ending Diagonal** | Wave 5 of an impulse, or Wave C of a correction | End of a trend / exhaustion | 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) | Rule | Description | |---|---| | Wave 1 is the longest | Sets the size — everything after is smaller | | Wave 3 can't be the shortest | Same as standard impulse rule | | Wave 5 must be the shortest | Because wave 1 is longest and wave 3 can't be shortest → wave 5 is shortest | | Wave 2 can't go past wave 1's start | Standard rule | | Wave 3 breaks past wave 1's end | This is the overlap — wave 3 enters wave 1 territory (allowed in diagonals) | | Wave 4 usually breaks past wave 1's end | More overlap — normal for diagonals | | Wave 5 can truncate | Wave 5 may fail to surpass wave 3 | | Wave 2 can't be a triangle | Internal structure rule | **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) | Rule | Description | |---|---| | Wave 1 is the shortest | Opposite of contracting — starts small | | Wave 3 can't be the shortest | Standard rule — and wave 3 is longer than wave 1 but shorter than wave 5 | | Wave 5 is the longest | The final wave is the biggest push | | Wave 2 can't go past wave 1's start | Standard rule | | Wave 4 can't go past wave 2's end | Keeps the expanding structure valid | | Wave 4 is longer than wave 2 | Corrections get bigger as the pattern expands | | Wave 5 always ends beyond wave 3 | No truncation allowed — wave 5 must be the longest | | Wave 5 can overshoot or undershoot the trendline | These are called throw overs | **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 --- ## Quick Reference | Feature | Contracting | Expanding | |---|---|---| | Shape | Wedge narrowing to apex | Crocodile mouth widening | | Wave 1 | Longest | Shortest | | Wave 5 | Shortest | Longest | | Truncation | Possible on wave 5 | Not possible (wave 5 must be longest) | | Throw overs | Can happen | Can happen | | More common? | Yes | No (but more powerful when it appears) | | Where found | Leading (wave 1/A) or Ending (wave 5/C) | Leading (wave 1/A) or Ending (wave 5/C) |