Diagonal trading in Elliott Wave analysis focuses on ending diagonals, which suggest potential market reversals at the end of a wave sequence. This pattern consists of five overlapping waves in a wedge formation that indicate market exhaustion. To identify an ending diagonal, traders must confirm the pattern in Wave 5, analyze the zigzag wave structure, and use trendlines.
You always want an edge when you trade on the stock market, right? Do you want to know a secret? If you understand one Elliott Wave Pattern—the ending diagonal pattern—you can spot a strong reversal before it happens. This is where diagonal trading can help you the most.
Diagonal Trading Strategy
In Elliott Wave analysis, diagonal trading means trading based on wave patterns that look like a wedge that is coming together or getting bigger. The ending diagonal pattern is one of the most reliable ways to set up a reversal.
Usually, an ending diagonal trading strategy forms at the end of a wave sequence, like in Wave 5 of an impulse or Wave C of a correction. An ending diagonal in Wave 5 usually means that the market is worn out, buyers (or sellers) are losing interest, and a big change is likely to happen.
Important things to know about an ending diagonal
- An ending diagonal appears in either Wave 5 or Wave C.
- There are five waves (1-2-3-4-5).
- The structure is made up of zigzag subwaves (ABC).
- Unlike regular impulse waves, waves 1, 3, and 5 overlap with waves 2 and 4.
- The wave structure makes a wedge shape that either gets smaller or bigger.
- You often see a quick and sharp change back to the start of Wave 1 when the pattern ends.
If you get this right, you can ride the reversal for big profits.
How to Draw an Ending Diagonal Pattern
You need to draw it correctly before you can trade well. Here’s how to find and draw the ending diagonal pattern in Elliott Wave (see chart below):
Step 1: Search for the pattern in Wave 5 (or Wave C).
Step 2: Make sure there are five smaller waves with the numbers 1, 2, 3, 4, and 5 on them.
Step 3: Make sure that each wave is a zigzag pattern and not an impulse.
Step 4: See if waves 1 and 3 are shorter, which would make a wedge that is getting smaller.
Step 5: Draw two lines that show the trend:
- One that connects the tops of waves 1, 3, and 5.
- Another line should connect the bottoms of waves 2 and 4.
When you draw it right, the wedge shape becomes clear, and so does your chance to trade.
Ending Diagonal Trading Chart
Now let’s make this real with a real-life example.
After hitting a low of about 0.64167 in August 2025, the AUDUSD currency pair had a giant rally in September 2025. You saw the pair break through one resistance level after another, reaching new highs. You might have even thought, “When will this rally end?”
AUDUSD / Hourly
The Elliott Wave Pattern had the answer, and here’s the secret.
Waves (1), (2), and (3) were easy to see on the hourly continuation chart. Wave (5) reached its highest point at approximately 0.67062.
Pay close attention to this: Wave v started to show waves that overlapped, each making a zigzag shape, all inside a wedge-shaped diagonal. This was a classic ending diagonal in wave 5.
According to Elliott Wave rules, this meant that a sharp change was about to happen, probably going all the way back to the start of the diagonal (back to earlier price levels).
This proved that Elliott Wave’s ending diagonal trading pattern was fully formed and ready to turn around.
Ending Diagonal Trading Example: When and How You Enter
You now have a lot of trading strategies to choose from in wave 5 once you confirm that the pattern (ending diagonal) is complete:
- Aggressive entry: Short right away when wave 5 looks like it’s done (AUDUSD is around 0.67062).
- Moderate entry: Wait for the trendline to break below wave 2-4.
- Conservative entry (safe entry): Wait for a small new wave 1 down to be confirmed, then enter on wave 2 retracement.
AUDUSD / 15 Min
You aren’t guessing with this ending diagonal trading strategy; you’re acting based on a well-known Elliott Wave Pattern.
Why This Works So Well for You
- You get an early reversal signal.
- You can set a clear stop loss above the peak of wave 5.
- Your profit goal is at least the beginning of the pattern.
- This pattern happens again and again with Forex, stocks, crypto, and any other asset.
This gives you a tactical edge whether you’re trading the wedge pattern, finding the ending diagonal in wave 5, or reading any ending diagonal pattern trading chart.
Final Thoughts
To really learn how to trade diagonally, you can’t ignore the ending diagonal trading strategy. It’s one of the few Elliott Wave setups that clearly shows the market is fatigued and gets you ready for a quick turnaround.
FAQ
What is the ending diagonal in the C wave?
When Wave C forms an ending diagonal, it means that the market is finishing its correction and getting ready for a big trend change or the continuation of the higher-degree trend. When Wave C shows price action that is getting smaller and overlapping subwaves (labeled 1-2-3-4-5 inside the diagonal), this setup often makes it easy to trade the reversal after the diagonal is done.
What is the ending diagonal in ABC?
In an ABC corrective pattern, the ending diagonal usually shows up in Wave C, which means the correction is almost over. The structure usually looks like a wedge, with each internal subwave getting weaker. This shows that buyers or sellers are losing strength. When Wave C's diagonal structure ends, the price often moves sharply in the opposite direction, giving you a good chance to enter a trade.
Disclaimer
This post is just meant to give you information; it is not financial advice. Trading and investing are risky, and results from the past don’t always mean results in the future. People who want to invest or trade should do their research and think about their situation before making a decision. This content’s author and platform are not responsible for any damages or losses that happen because of its use. Get personalized help from a qualified financial expert.
Leave a Reply