# Diagonal Triangle Design

### Video Transcription:

Hello, Traders. Welcome to the Elliott Wave Theory course and the second module Elliott Wave Patterns. In this lesson we are going to learn about the diagonal triangles. Of course, we are going to learn where to find them and how to trade them.

Now, let’s talk about defining what a diagonal triangle is. Diagonal triangles are reversal patterns found at the end of wave five on the 1-2-3-4-5 pattern, or the basic design. In very, very rare cases, you are going to find a diagonal triangle at the end of the A-B-C pattern of the basic design. But we’re always going to look for them at the end of wave five. This is why they are also called ending diagonals, and they take a wedge-shaped formation within two converging lines. This means that because they are at the end of wave five of the 1-2-3-4-5 pattern, they are going to be reversal times.

So we are going to counter-trend trade when we spot them. This is the only five-wave structure in the direction of the trend where wave five might overcome the height of wave one. This means that it is a five-wave…the diagonal triangle takes the shape of a five-wave pattern, or five-wave structure. But you might find sometimes that wave four retraces below the height of wave one. However, the normal rules apply. No reactionary wave can fully retrace the preceding actionary wave. This means that wave two and four can not fully retrace wave one or three.

The third wave within the pattern can never be the shortest. This means that if you find a diagonal triangle, and the pattern is about to close, but you find that the third wave within the pattern is the shortest one, this is not a regular diagonal triangle within the Elliot Wave Theory patterns. So it’s not a valid one.

On rare occasions, a diagonal might end in a failure. Although this will not be the case on the majority of ending diagonals. In rare cases, endings diagonals can take the shape of an expanding wave, where the pattern’s line diverge from each other. This pattern is called a ‘megaphone.’ It’s very rare to find a megaphone at the end of wave five on a 1-2-3-4-5 pattern, in a basic design. So we are not going to be looking at it in depth. We are only going to focus on normal, and in diagonals.

Now let me show you how diagonal triangles look like. They look like this. And you are going to find them in very steep moves. You can see that here that we have a 1-2-3-4-5 pattern. And the ending diagonal is the fifth wave of the ascending 1-2-3-4-5 pattern. You can see that inside the ending diagonal, we have our 1-2-3-4-5 pattern. We expect our reversal in price starting the A-B-C of the basic pattern. But the thing I want you to look at very closely is the actual wedge, or the actual triangle – diagonal triangle, I’m sorry – at the end of the 1-2-3-4-5 pattern.

There has to be five waves inside the diagonal triangle. If you have multiple touches on the lines of the pattern, this is no longer a diagonal triangle. So you have to stay away from it and not try to trade it as a diagonal triangle. This has to be an exact pattern in price action for you to be able to have the best risk to reward scenario, and have the highest probability of your trade going your way. And you can find it in ascending 1-2-3-4-5 patterns and descending 1-2-3-4-5 patterns. This is the same.

And the reason why price is going to…well, price is likely to reverse at this point, right here, and at this point right here, is because you can see that price is compressing. And this impure price action means that bulls are giving up and bears are starting to take control of the market. Even though we are still making higher highs in a very small, or very thin, 1-2-3-4-5 structure inside the diagonal triangle. At the end, bears are going to overcome the bull pressure and price is going to turn around. So we are going to try to profit from this, using the Elliott Wave Theory and always calculating the fifth wave as our entry point.