An ending diagonal is a five wave pattern that forms near the end of a trend, usually in wave 5 or wave C, and in its contracting form it looks like a wedge. The ending diagonal elliott wave label is easy to draw and easy to misuse, because a wedge on a chart is not automatically a diagonal. This guide separates rules from guidelines, gives you one checklist to identify the pattern and a second one to trigger a trade, and works through a hypothetical gold trade with bar numbers and lot size math.
What Is an Ending Diagonal in Elliott Wave?
An ending diagonal is a terminal pattern. It forms in the fifth wave of an impulse or in wave C of an A, B, C correction. It has five waves labelled 1, 2, 3, 4, 5, and each wave splits into three smaller waves (a 3-3-3-3-3 structure). Wave 4 overlaps into the price area of wave 1.
In the contracting form the two trendlines come together like a wedge. In the expanding form they widen. Educational sources describe the pattern as a sign that the trend is tiring and a reversal may follow. That is a possibility to plan for, not a promise.
The Ending Diagonal Elliott Wave Rules vs Guidelines
Sources word these points differently, so this article uses one working convention. A rule is a condition that, if broken, means we do not use the ending diagonal label. A guideline is a common tendency that can be broken. The tables show the rising (bullish) case and its mirror for a falling pattern.
Rules used in this article
| Rule | Rising pattern (ends an uptrend) | Falling pattern (ends a downtrend) |
|---|---|---|
| Subdivision | Each of the five waves is a three wave (a, b, c) structure | Same |
| Wave 2 against the start of wave 1 | Wave 2 low stays above the start of wave 1 | Wave 2 high stays below the start of wave 1 |
| Wave 4 against the end of wave 2 | Wave 4 low stays above the wave 2 low | Wave 4 high stays below the wave 2 high |
| Overlap | Wave 4 trades below the wave 1 high, into the wave 1 area | Wave 4 trades above the wave 1 low, into the wave 1 area |
| Wave 3 length | Wave 3 is not the shortest of waves 1, 3 and 5 | Same |
Note the boundaries. A later advancing wave can and normally does travel beyond the end of the previous wave of the same direction. The limits above only say how far a corrective leg (wave 2 or wave 4) may go back. If wave 4 does not enter the wave 1 area, it does not qualify under the overlap convention used here. That alone does not prove you have an impulse, so count the rest of the structure before relabelling.
Guidelines
| Guideline | What it says |
|---|---|
| Contracting shape | Wave 1 is longest, wave 3 is shorter than wave 1, wave 5 is shortest. Wave 4 is often shorter than wave 2. |
| Expanding shape | The reverse: wave 1 is shortest and wave 5 is longest. |
| Wave 5 and wave 3 | Wave 5 normally ends beyond the wave 3 end. Plan for a shorter wave 5 as well, and do not make the trade depend on either case. |
| Momentum divergence | Price makes a new extreme while an indicator such as RSI does not. It can add weight but it is not required. |
Where the Sources Differ
The sources we checked (listed at the end of the article) agree on three points: five waves, wave 3 never the shortest, and a terminal location in wave 5 or wave C. They differ on the points below.
- Wave 1 longest. EWM Interactive says wave 1 is usually the longest but not necessarily. Elliott Wave Monitor lists wave 1 longest and wave 5 shortest as features of the contracting form. We treat the size order as a guideline and “wave 3 not the shortest” as the rule.
- Overlap. Elliott Wave Forecast calls overlap a mandatory requirement of a diagonal, and the Elliott Desk rules page lists it as a rule for ending diagonals (it describes the leading diagonal as only usually overlapping). We require overlap for an ending diagonal.
- Wave 5 beyond wave 3. FBS Academy says wave 5 breaks the wave 3 end in the absolute majority of cases, which still leaves room for exceptions.
We did not open the original text of Frost and Prechter’s Elliott Wave Principle for this update. The sites above are educational pages and they word things differently. Treat this convention as a working one and check it against the book or course you study from.
Checklist 1: Can I Label It a Contracting Ending Diagonal?
This checklist is about identifying the pattern only. It says nothing about entry. Work through it in order. If any of items 1 to 6 fails, do not use the ending diagonal label under this convention.
- Location. Is the pattern in a wave 5 or wave C position, after a clear move? A wedge in the middle of a trend is not a terminal pattern.
- Subdivision. Does each of the five legs break into three waves on a lower timeframe?
- Overlap. Does wave 4 trade into the price area of wave 1?
- Wave 2 boundary. Did wave 2 stay on the correct side of the start of wave 1?
- Wave 4 boundary. Did wave 4 stay on the correct side of the end of wave 2?
- Wave 3 length. Is wave 3 longer than at least one of wave 1 or wave 5?
- Shape. Do the 1 to 3 line and the 2 to 4 line converge, with wave 1 longest and wave 5 shortest? If yes, label it contracting. If the lines widen, items 1 to 6 may still hold and you are looking at an expanding diagonal, which has a different shape guideline.
Wedge vs Ending Diagonal vs Expanding Diagonal
| Feature | Plain wedge | Contracting ending diagonal | Expanding ending diagonal |
|---|---|---|---|
| Meaning | A chart pattern with two converging lines | An Elliott Wave pattern with five overlapping waves | An Elliott Wave pattern with widening lines |
| Wave count needed | No | Yes, 3-3-3-3-3 | Yes, 3-3-3-3-3 |
| Typical leg sizes (guideline) | Not defined | Wave 1 longest, wave 5 shortest | Wave 1 shortest, wave 5 longest |
| Wave 4 overlaps wave 1 | Not tested | Required here | Required here |
A contracting ending diagonal looks like a wedge, but a wedge is not automatically a diagonal. An expanding diagonal is not a wedge at all, since its lines widen. Only the wave count tells them apart.
Checklist 2: Trade Trigger for an Ending Diagonal Trading Strategy
A labelled count is an opinion. A trade needs its own trigger. EWM Interactive describes three entry approaches: near the end of wave 5, on a break of the line connecting waves 2 and 4, or when the end of wave 4 is taken out. This guide uses the middle one in the example. It gives you a break as confirmation, but the cost is a wider stop than an entry near the wave 5 high.
- Checklist 1 passed and the five wave points are written down.
- A candle has closed beyond the line through the wave 2 and wave 4 extremes (below it for a rising pattern).
- The stop is placed a small buffer beyond the wave 5 extreme, and the distance is measured from your actual entry.
- Reward to risk to your first realistic target meets the minimum in your own plan.
- Position size is calculated before the order, with an allowance for slippage.
- No major news release sits in the next few candles. The gold FOMC plan shows how to treat that period.
XAUUSD Hypothetical Example With Bar Numbers
This is a hypothetical example on an imagined 1 hour gold chart, using round numbers and bar numbers instead of dates. It is not a real trade, not a signal and not live prices. Costs, spreads and slippage change real results.
Assumptions. Bar 0 is the start of the pattern. Prices are in dollars per ounce, so a 1.00 move is 1 point and 10 pips (gold: 1 pip = 0.10). We assume the broker contract is 100 ounces per 1.00 lot, so a 1 point move is $100 per lot and 1 pip is $10 per lot. Check your own broker’s contract size and lot step. All profit and loss figures ignore spread and commission.
| Point | Bar number | Price | Leg |
|---|---|---|---|
| Start of pattern | 0 | 3,800 | Start |
| Wave 1 high | 10 | 3,890 | 90 up |
| Wave 2 low | 16 | 3,850 | 40 down |
| Wave 3 high | 28 | 3,915 | 65 up |
| Wave 4 low | 36 | 3,885 | 30 down |
| Wave 5 high | 46 | 3,940 | 55 up |
The two lines. The lower line passes through the wave 2 low (bar 16, 3,850) and the wave 4 low (bar 36, 3,885). It rises 35 points over 20 bars, which is 1.75 per bar. Its value is 3902 at bar 46 and 3909 at bar 50. The upper line passes through the wave 1 high (bar 10, 3,890) and the wave 3 high (bar 28, 3,915). It rises 25 points over 18 bars, about 1.39 per bar, and reaches 3,940 at bar 46. The gap between the lines is about 48.3 points at bar 16, 41.1 at bar 36 and 37.5 at bar 46, so the lines converge.
Checklist 1 test. Wave 4 low (3,885) is below the wave 1 high (3,890), so there is overlap. Wave 2 low (3,850) is above the start (3,800). Wave 4 low (3,885) is above the wave 2 low (3,850). Wave 3 (65) is longer than wave 5 (55), so it is not the shortest. The sizes run 90, 65, 55, which fits the contracting guideline. We assume each leg shows three waves on a lower timeframe and that the location is wave 5.
Trigger. The bar 49 candle closes at 3,912, above the lower line (3907). The bar 50 candle closes at 3,905, below the line (3909). That close is the trigger. For simplicity we assume a sell fill at 3,905. In live trading you are usually filled at the next candle.
Stop. The wave 5 high is 3,940. A 5 point buffer puts the stop at 3,945. Stop distance is 3,945 minus 3,905, which is 40 points, or 400 pips.
Reference targets. These are planning references taken from the pattern, not expected outcomes.
| Reference | Price | Distance | Reward to risk | Profit at 0.02 lots |
|---|---|---|---|---|
| Wave 4 low | 3,885 | 20 points (200 pips) | 0.5 (20 divided by 40) | $40 |
| Wave 2 low | 3,850 | 55 points (550 pips) | 1.4 (55 divided by 40, 1.375) | $110 |
| Start of pattern | 3,800 | 105 points (1,050 pips) | 2.6 (105 divided by 40, 2.625) | $210 |
The wave 4 low pays only half of the risk. Waiting for the line break moved the entry away from the high, so the stop is wide compared with the nearest reference. If the first target fails your minimum reward to risk, the trade only makes sense if you have a reason to expect the wave 2 low or the pattern start. That is a judgement, so write it in your plan before you click.
Lot size for 1% risk, set before entry. On a $10,000 account, 1% is $100. Risk per 1.00 lot is 40 points times $100, which is $4,000. $100 divided by $4,000 is 0.025 lots. Slippage can widen the stop distance, so add an allowance, for example 2 points. At 42 points, risk per lot is $4,200 and the size is 0.0238 lots. With a 0.01 lot step, round down to 0.02 lots.
Check: 400 pips times $10 times 0.02 equals $80 (0.8% of the account). If you are filled 2 points worse, risk is 42 points times $100 times 0.02, which is $84.
If the fill is worse than planned. An executed order cannot be resized after the fact. You can close part of the position, subject to your broker’s lot step, or accept the higher risk. As an illustration, a fill 10 pips (1 point) worse, at 3,904, makes the stop distance 41 points and risk $82 at 0.02 lots. The wave 2 low reference then pays 54 points, a ratio near 1.3 to 1, and the wave 4 low pays 19 points, about 0.46 to 1. Reducing 0.02 lots to 0.01 would halve the risk to $41.
The lot size guide shows the same method for other pairs.
Stop and Invalidation
In this example the operative stop is 3,945. The wave 5 high at 3,940 is where the count says the pattern ended. A trade between 3,940 and 3,945 puts the “wave 5 is complete” label in doubt, and you may choose to review the trade. That is a discretionary choice. The sizing math assumes the loss is taken at 3,945.
A new high above 3,940 invalidates the proposed wave 5 endpoint. It does not necessarily invalidate the whole diagonal, because wave 5 may simply not be finished. That is why the stop sits beyond the high with a buffer, and why you relabel after it is hit instead of averaging into the trade.
The stop in this plan does not change after the first target. Moving a stop to entry or closing part of the position is an optional management choice. It changes the reward to risk, so decide it before entry.
Other signs the count is wrong:
- Wave 4 never entered the wave 1 area, so it does not qualify under the overlap convention used here.
- Wave 2 or wave 4 went beyond the boundary in the rules table.
- Wave 3 turns out to be the shortest of waves 1, 3 and 5.
- A leg you counted as three waves clearly contains five.
- Price breaks the lower line, then recovers back above it and makes a new high. The break failed.
Common Mistakes With the Ending Diagonal Pattern
- Calling a wedge an ending diagonal without counting the waves inside it.
- Treating the trendline break as part of the pattern definition. The pattern and the trade trigger are separate steps.
- Selling at the top of wave 5 with no confirmation. Wave 5 can end higher than expected.
- Placing the stop inside the pattern, where normal noise can reach it.
- Using a fixed lot size instead of calculating from the real stop distance.
- Treating the wave 2 low or the pattern start as guaranteed. They are references.
Prop Firm Note: Daily Loss and Drawdown
Prop firms set their own daily loss and maximum drawdown limits, so read your firm’s rules before sizing any trade. The stop distance in a diagonal trade depends on the setup, and in the example above it is 40 points. If a firm’s daily limit were 5%, five full losses at 1% would reach it, so think about how many attempts you allow in a day. Whether drawdown is static or trailing also changes your room. See static vs trailing drawdown first.
Forex Trading in Bangladesh: A Legal Caution
Forex Wave Expert does not encourage anyone in Bangladesh to deposit or invest money with forex brokers. The Foreign Exchange Regulation Act 1947 is the governing law on foreign exchange in Bangladesh. Section 5(1) says that, unless Bangladesh Bank grants an exemption, no person in or resident in Bangladesh may make a payment to or for the credit of a person resident outside Bangladesh. A broker deposit or a prop firm challenge fee sent abroad raises that question. Whether a specific payment is permitted is for your bank and a qualified adviser to confirm.
Prop firm participation, challenge fees and payouts are three separate questions, and each needs its own check. We have not verified that any of them is permitted for a Bangladeshi resident, and the fact that a bank can process a transfer or issue paperwork does not settle that. Bangladesh Bank has also issued warnings against illegal online forex dealing. We could read it only as reproduced on a commercial bank website, not the original notice, so check the current notices on the Bangladesh Bank website. IBs (introducing brokers) are usually paid based on client activity, so treat any advice from them to deposit as a sales message. Our Bengali guide on forex trading and the law in Bangladesh has more detail.
Sources Checked
Web addresses are shown as plain text on purpose. Open them yourself to read the passages.
- Foreign Exchange Regulation Act 1947, section 5, Bangladesh laws portal: bdlaws.minlaw.gov.bd/act-218/section-3338.html. Used for the general restriction on payments abroad and the exemption power of Bangladesh Bank.
- NCC Bank page reproducing a Bangladesh Bank warning on illegal forex dealing: nccbank.com.bd/NccbFeatures/bbForexWarning. Used only to show that a warning exists. The original notice was not opened.
- Elliott Wave Insight, ending diagonal page: elliottwaveinsight.com/educational-hub/ending-diagonal-elliott-wave/. Wave 4 overlap and wave 3 not shortest.
- Elliott Wave Forecast, overlap article: elliottwave-forecast.com/elliottwave/can-wave-4-overlap-wave-1/. Overlap described as required in a diagonal.
- Elliott Wave Forecast, diagonals page: elliottwave-forecast.com/trading/leading-and-ending-diagonals/. Structure, wave 2 and wave 4 boundary points listed for leading diagonals, and divergence.
- Elliott Desk, rules page: elliott-desk.app/en/elliott-wave-rules/. Ending diagonal overlap listed as a rule, and contracting shape items.
- Elliott Wave Monitor, diagonals page: elliottwavemonitor.com/leading-and-ending-diagonal/. Contracting and expanding size order.
- EWM Interactive, ending diagonal page: ewminteractive.com/ending-diagonal-what-is-this. Three entry approaches, and wave 1 usually but not necessarily longest.
- FBS Academy, ending diagonal page: fbs.com/fbs-academy/trading-tutorials/trading-handbook/ending-diagonal-pattern. Wave 5 breaking the wave 3 end in most cases.
- Intelligent Investing, Elliott Wave Principle page: intelligentinvesting.market/elliott-wave-theory/. Each diagonal sub wave not fully retracing the previous one, and a return toward the wedge start after the pattern ends.
Frequently Asked Questions
What is an ending diagonal in Elliott Wave?
It is a five wave terminal pattern that appears in wave 5 of an impulse or wave C of a correction. Each wave splits into three smaller waves and wave 4 overlaps wave 1. The contracting form looks like a wedge. It suggests the trend is tiring, but a reversal is not guaranteed.
Does wave 4 have to overlap wave 1 in an ending diagonal?
Under the convention used in this article, yes. The sources we checked describe overlap as required for diagonals, though the wording varies. If wave 4 does not enter the wave 1 area, the count does not qualify as an ending diagonal here.
Which wave cannot be the shortest in an ending diagonal?
Wave 3 cannot be the shortest of waves 1, 3 and 5. This is the point on which the sources agree. The idea that wave 1 is longest and wave 5 shortest is a guideline for the contracting form, and sources differ on how strictly to apply it.
How do you trade an ending diagonal?
First confirm the pattern with a checklist. Then use a separate trigger, such as a candle close beyond the line through waves 2 and 4. Place the stop beyond the wave 5 extreme, size the position from the real stop distance, and treat targets as planning references.
What is the difference between a wedge and an ending diagonal?
A wedge is a chart pattern with two converging lines. An ending diagonal needs a five wave count with three waves in each leg, overlap of wave 4 and wave 1, and a terminal location. A contracting ending diagonal looks like a wedge, but a wedge is not automatically a diagonal.
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Trading forex, gold and CFDs carries a high risk of loss. Elliott Wave counts are opinions about probabilities, not guarantees. The example in this post is hypothetical, ignores costs and is not financial advice.
Editorial Note: This article is prepared by the ForexWaveExpert (FWE) team. Every post is reviewed, fact-checked and corrected by Rana Das, Founder & CEO of ForexWaveExpert, a gold trader with 15+ years of experience in Elliott Wave and Price Action and winner of the Fastbull Best Mentor Award 2024. This content is for educational purposes only and is not financial advice.
