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The leading diagonal triangle, or wedge as many call it, is a narrowing price move composed of two converging trendlines occurring in
a wave 1 position of impulses or wave A position of zigzags. The chart to the right shows the ideal example without any subwaves highlighted.
Notice that wave 4 overlaps wave 1, just as it does in the ending diagonal triangle pattern. However,
the ending diagonal triangle has a 3-3-3-3-3 subwave structure, but the leading diagonal triangle shows a 5-3-5-3-5 pattern. The next chart makes
this clear.
Frost and Prechter write,
"The structure of this formation fits the spirit of the Wave Principle in that the five-wave subdivisions of
the actionary waves communicate a ’continuation’ message as opposed to the ’termination’ implication of the three-wave subdivisions in the
actionary waves of the ending diagonal."
I have no idea what that means, but I couldn’t have said it better myself. They go on to write that Elliott did not discover this
pattern, but Frost and Prechter believe it is valid.
About identification, they go on to write,
"The main key to recognizing this pattern is the decided slowing of price change in the fifth subwave relative to the
third. By contrast, in developing first and second waves, short term speed typically increases, and breath (i.e., the number of stocks
or subindexes participating) often expands."
The chart to the right shows the leading diagonal triangle in a bull market with the subwaves marked. For the purposes of illustration,
think of subwaves as line segments. Wave 1 has five subwaves and wave 2 has three subwaves. The shape of the leading
diagonal triangle is composed of 5-3-5-3-5 subwaves.
Frost and Prechter did not mention a bearish version of the leading diagonal triangle. If it exists, it would look like the above chart
flipped upside down.
Rules
The leading diagonal triangle has rules that govern its shape. They are listed here.
- The subwave action usually follows two converging trendlines.
- Subwave 4 often overlaps subwave 1.
- The subwave count is 5-3-5-3-5.
- The leading diagonal triangle usually occurs as part of wave 1 of impulses or wave A of zigzags.
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