In this tutorial I'll try and explain how to trade an ending diagonal. You would want to see a market that moves in converging channels(at times these can be too steep like those of rising/falling wedges). Next confirm 5 waves with respect to the channel. Waves 1, 3, 5 should make a triple top, whereas 2 and 4 are joined with one diagonal. Divergences are imperative as well, upon wave confirmation, the RSI divergence should support your bias, in this case, it's a medium bearish RSI, as the price rises, the oscillator remains holding the same region.
The guidelines for entries and stop losses are simple. Wait for a break of wave 4's extreme and place the initial stop loss slightly above wave 5. At times there is a retest, which pulls back close to where the extreme of the 5th wave, which is ideal for entries and dcaing.
Another approach is entering at wave 5. More often than not, wave 3 of an ending diagonal is shorter than wave 1, and wave 5 is shorter than wave 3, since wave 3 can never be the shortest among 1, 3 and 5.
There are a lot of profit taking strategies out there. For this setup, I take profits as a whole rather than fib levels. A typical ending diagonal results in a correction(abc) that completely retraces it (i.e wave c terminates where wave 1 begins).
Note: for ellioticians, you'll find that with ending diagonals, wave 4 gets into the territory of wave one, which is valid with ending diagonals and usually this is the case where 1>3 and 3>5.
Now this is the setup in summary:
1) entry triggers:
- ending diagonal
- waves 1 - 5
- RSI divergence
- triple top
- breakout/breakdown
2) entry:
(i) at break of wave 4
(ii) at wave 5 (aggressive approach)
If opting for ii, make sure wave 1 is longer than 3 and 5 is shorter than 3
3) stop loss:
slightly above wave 5( can be adjusted once significant gains have been made)
4) take profit:
wave 2, let the price move till it's the same level as wave 2, otherwise use any profit taking strategy of your choice.
5) enjoy the profits !
That's it for this tutorial, take care and thanks for dropping by :)
The guidelines for entries and stop losses are simple. Wait for a break of wave 4's extreme and place the initial stop loss slightly above wave 5. At times there is a retest, which pulls back close to where the extreme of the 5th wave, which is ideal for entries and dcaing.
Another approach is entering at wave 5. More often than not, wave 3 of an ending diagonal is shorter than wave 1, and wave 5 is shorter than wave 3, since wave 3 can never be the shortest among 1, 3 and 5.
There are a lot of profit taking strategies out there. For this setup, I take profits as a whole rather than fib levels. A typical ending diagonal results in a correction(abc) that completely retraces it (i.e wave c terminates where wave 1 begins).
Note: for ellioticians, you'll find that with ending diagonals, wave 4 gets into the territory of wave one, which is valid with ending diagonals and usually this is the case where 1>3 and 3>5.
Now this is the setup in summary:
1) entry triggers:
- ending diagonal
- waves 1 - 5
- RSI divergence
- triple top
- breakout/breakdown
2) entry:
(i) at break of wave 4
(ii) at wave 5 (aggressive approach)
If opting for ii, make sure wave 1 is longer than 3 and 5 is shorter than 3
3) stop loss:
slightly above wave 5( can be adjusted once significant gains have been made)
4) take profit:
wave 2, let the price move till it's the same level as wave 2, otherwise use any profit taking strategy of your choice.
5) enjoy the profits !
That's it for this tutorial, take care and thanks for dropping by :)