The ending diagonal: A powerful Elliott Wave structure [Video]

The ending diagonal is one of the five structures in Elliott Wave theory and plays a crucial role in identifying supply or demand weakness. For experienced traders, it can even be used to trade against the trend and achieve the best risk-reward ratios. 

For beginner traders, this structure is a starting point to spot high-probability entries once the price shows strength in the opposite direction of the ending diagonal.

Where the ending diagonal appears

The ending diagonal occurs within the final wave of a cycle, either in the fifth wave of an impulse or the C wave of a corrective pattern.

In the example shown in this video, the ending diagonal appears during the fifth wave of an upward movement, signaling demand weakness and the market’s distribution phase led by professionals. Volume decreases throughout the diagonal's formation, confirming the weakening demand.

How to confirm the ending diagonal

When the first bearish move driven by supply emerges, we can assess its strength by comparing the volume of the bearish movement to the volume during the subsequent pullback. In this case, the volume analysis confirms the strength of the supply and validates the ending diagonal identified at the market’s peak.

This scenario sets the stage for a significant bearish movement, offering an excellent opportunity to sell with a stop loss placed near the reversal point. This allows for an outstanding risk-reward ratio.

The value of Elliott Wave theory

This example highlights the practical benefits of using Elliott Wave theory in your analysis. To succeed with this approach, it’s essential to validate the wave structure with volume to evaluate the strength of supply and demand and identify high-probability trade entries.