Diagonal Pattern: Straight Shot To Opportunity

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Diagonal Pattern: Straight Shot To Opportunity
EWI's Daily Futures Junctures reveals the near-term pattern underway in the world's major commodity markets

By Nico Isaac
Wed, 04 Apr 2012 10:30:00 ET

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Today, April 4, I sit down with Elliott Wave International's chief commodity analyst and Futures Junctures Service editor Jeffrey Kennedy to discuss his favorite wave pattern of all: the diagonal.

Nico Isaac: You say if you had to pick just ONE of all 13 known Elliott wave structures to spend the rest of your technical trading life with, it would be diagonal. First, tell us what the diagonal is.

Jeffrey Kennedy: The diagonal is a five-wave pattern labeled 1 through 5, in which each leg subdivides into three smaller waves: 3-3-3-3-3. Unlike motive waves, however, diagonals are the only five-wave structures in the direction of the main trend in which wave 4 almost always moves into the price territory of wave 1. See head shots below:

NI: So, what makes this pattern so darn special?

JK: As you can see in the above charts, the diagonal is a terminating pattern. They can only occur in waves 5 of impulses or C-waves of corrections. This is why they're so exciting. Diagonals precede a dramatic change in trend. And, when they end, prices tend to retrace the entire pattern, or more, and fast -- in 1/3 to ½ the time it took the pattern to form.

Put simply: If you see a diagonal, you know the train of change is coming into the station.

NI: Well, in the March 30 Daily Futures Junctures (on-line now with a risk-free subscription) you do, in fact, see a diagonal underway in the recent price action of a major grain market. There, you present the following Elliott wave chart: (Some Elliott labels have been removed, while I took the liberty to draw a blue circle around the diagonal pattern for clarity)

JK: Yes. This is a classic diagonal unfolding in the final wave of the larger trend. As you can see, prices have put the finishing touches on wave (v) of c (circled). And, if my wave count is correct, this market's prices are about to board the "Exciting Southbound Turn" Railway.

NI: Thank you so much for taking the time to explain the ins and outs of your favorite structure, the diagonal. And also, for alerting readers to the possible DRAMA in store for this major grain market thanks to this Elliott wave pattern.

You can see the most current 5 full Daily Futures Junctures publications -- which includes Elliott wave-labeled price charts, detailed written analysis, and live video commentary on the near-term trend changes in store for the market featured today -- and many others -- via a risk-free Futures Junctures Service subscription. Details below.

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Tags: Daily Futures Junctures, diagonal, diagonal triangle, Elliott wave, futures trading, grain futures, Jeffrey Kennedy

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