Elliott Wave Theory is a powerful framework that helps traders understand market structure and predict future price movements. Among its more advanced concepts are Diagonal Triangles—unique wave patterns that signal either the beginning or end of a significant trend.
These diagonals come in two forms:
- Leading Diagonals: Appear at the start of a new trend.
- Ending Diagonals: Occur at the end of a trend, signaling exhaustion and potential reversal.
In this blog post, we’ll break down both types of diagonal triangles in simple language, with examples tailored for Indian stock market traders. By the end, you’ll be able to identify these patterns on your charts and use them to improve your trade entries and exits.
What Are Diagonal Triangles?
Diagonal triangles are special five-wave patterns (1-2-3-4-5) that differ from typical impulsive waves. While impulsive waves are usually clean and non-overlapping, diagonal triangles have converging trendlines and often show overlapping price action, especially between waves 1 and 4.
Think of a diagonal triangle like a “wedge” pattern in classical technical analysis—prices are still moving directionally, but in a more compressed and indecisive way.
Key Features of Diagonal Triangles:
- Five-wave internal structure
- Converging (sometimes diverging) trendlines
- Allowed overlap between Wave 1 and Wave 4
- Often occur during market transitions—either at the start or end of trends
Types of Diagonal Triangles in Elliott Wave
There are two main types of diagonal triangles:
- Leading Diagonals – Appear at the beginning of a trend
- Ending Diagonals – Form at the end of a trend
Let’s go deeper into each.
1. Leading Diagonals: The Start of Something Big
A Leading Diagonal forms in Wave 1 of an impulsive move or Wave A of a correction. It’s a sign that a new trend is starting, but the market is still uncertain.
Structure of a Leading Diagonal:
- Follows a 5-3-5-3-5 pattern
- Waves 1, 3, and 5 are impulsive or strong
- Waves 2 and 4 are corrective (zigzag or flat)
- Some overlap between Wave 1 and Wave 4 is allowed
- Trendlines connecting the tops and bottoms converge slightly
Key Characteristics:
- Bullish/Bearish tone: Depending on the direction
- High volume, especially in Waves 1 and 3
- Common in newly emerging trends after a long consolidation
- Often signals early entry opportunities
Indian Market Example:
Suppose Nifty 50 breaks out from a long sideways phase and begins forming a 5-wave rising wedge pattern on the daily chart. You notice overlapping between Wave 1 and 4 and increasing volume in Wave 3. That’s likely a Leading Diagonal in Wave 1.
This signals a new bullish phase, and it’s a great time to look for long trades, especially during the Wave 2 correction.
2. Ending Diagonals: The Grand Finale
An Ending Diagonal forms at the end of a trend—either in Wave 5 of an impulsive sequence or Wave C of a correction. It often signals trend exhaustion and an upcoming reversal.
Structure of an Ending Diagonal:
- Follows a 3-3-3-3-3 pattern
- All five sub-waves are corrective (zigzags or flats)
- Strong overlap between Wave 1 and Wave 4
- Converging trendlines become more noticeable
- Prices lose momentum toward the end
Key Characteristics:
- Volume decreases as pattern progresses
- Market shows signs of indecision or fatigue
- Breakout or reversal usually follows Wave 5
- Ideal for taking profits or preparing short positions
Indian Market Example:
Say Reliance Industries has been in a long uptrend. Suddenly, the rally slows, and price starts forming a narrowing wedge over several weeks, with overlapping waves and lower volume. If this pattern completes in five waves and fits a 3-3-3-3-3 structure, it’s likely an Ending Diagonal in Wave 5.
A sharp drop afterward would confirm the trend reversal. This is when smart traders exit long trades or even go short.
Comparison: Leading vs Ending Diagonals
Here’s a quick comparison of both patterns:
| Aspect | Leading Diagonal | Ending Diagonal |
|---|---|---|
| Where It Appears | Start of a trend (Wave 1 or A) | End of a trend (Wave 5 or C) |
| Wave Structure | 5-3-5-3-5 | 3-3-3-3-3 |
| Volume Behavior | Volume increases | Volume decreases |
| Wave Overlap | Minor overlap (Waves 1 and 4) | Major overlap (Waves 1 and 4) |
| Market Implication | Signals trend initiation | Signals trend termination |
| Trader Opportunity | Enter early on trend breakout | Exit or reverse trades before reversal |
How to Identify Diagonal Triangles (Step-by-Step)
Step 1: Look for Converging Trendlines
Plot trendlines along the tops and bottoms of the suspected wave sequence. Diagonals will form a wedge shape—either expanding or contracting.
Step 2: Count the Sub-Waves
Use Elliott Wave counting to identify five waves. For leading diagonals, count 5-3-5-3-5. For ending diagonals, count 3-3-3-3-3.
Step 3: Check for Overlap
Wave 1 and Wave 4 may overlap in diagonals—especially in Ending Diagonals. In standard impulse waves, this is not allowed.
Step 4: Analyze Volume
Use volume as a confirmation:
- Rising volume suggests a Leading Diagonal.
- Falling volume supports an Ending Diagonal.
Step 5: Validate with Indicators
Use RSI, MACD, or Fibonacci retracements to support your pattern recognition. For instance, divergence in RSI often confirms trend exhaustion in an Ending Diagonal.
Trading Diagonal Triangles: Tips for Indian Traders
Diagonal patterns can offer high-probability trades if used correctly. Here are some tips tailored to the Indian stock market:
✅ 1. Trade the Breakout
- For Leading Diagonals, enter trades after Wave 2 pullback.
- For Ending Diagonals, trade the reversal breakout after Wave 5.
✅ 2. Use High-Liquidity Stocks
Focus on Nifty 50 stocks like Reliance, Infosys, or TCS, where price patterns are more reliable.
✅ 3. Mind the News
Diagonal formations often precede major announcements. Keep an eye on RBI policy, Union Budget, or earnings releases that can trigger breakouts or breakdowns.
✅ 4. Combine with Timeframes
- Spot diagonal triangles on higher timeframes (daily/weekly).
- Zoom into lower timeframes (15-min, hourly) for exact entries.
✅ 5. Manage Risk
Always place stop-loss orders just beyond the diagonal structure. Diagonals can fail, especially in volatile markets.
Common Mistakes to Avoid
- Mistaking a Wedge for a Diagonal: Not all wedges are Elliott Diagonals. Use wave counts and volume to verify.
- Ignoring the Context: Always consider where the pattern occurs—beginning or end of a trend.
- Jumping in Too Early: Wait for the full structure to complete. Patience pays.
Final Thoughts: Diagonals as Your Trading Edge
Leading and Ending Diagonals offer Elliott Wave traders a significant edge in understanding where the market is headed. These patterns provide early signs of trend continuation or trend reversal—both incredibly valuable insights.
By mastering these diagonal structures, you can:
- Enter trends earlier than most traders
- Exit safely before trends reverse
- Combine wave analysis with your broader technical strategy
At Elliott Wave Guru, we’re committed to helping Indian traders decode market behavior with confidence. If you’re serious about learning Elliott Wave Theory, check out our full suite of blog articles, tutorials, and advanced training programs.
📌 Bookmark this guide and refer back to it whenever you spot a diagonal pattern forming.
Got questions or want a case study on a specific Indian stock? Let us know—we’re here to help you grow!