The bottom trend line and the top trend line form a tightening wedge containing three major pushes ( a 5 wave progression). The difference between a Diagonal and a sustainable 5 wave move is that the 4th wave correction within the diagonal (7,205), retraces well below the price territory of the wave 1 peak (7,240). The third major push upward, the 5th wave within the wedge which is developing right now, often overshoots the upper trend line boundary.
Diagonals (whether progressing up or down) are a sign of imminent trend reversal that will retrace, as a minimum, the entire pattern. Diagonals can happen over any time scale or degree.
The appearance of this diagonal is not unexpected, we have been expecting a sharp reversal in trend. That makes it a relatively high probability trade.
Real time update:
Sell this overshoot as soon as it starts to break lower!
Thanks a lot for this lesson. Highly informative.
ReplyDeleteJust one question, does the expected sharp reversal occurs on the same time frame (time duaration) on which the initial diagonal occurred, or it can take longer?? or less time??
Thanks.
"Thanks a lot for this lesson. Highly informative."
ReplyDeleteI concur. Thanks FDR.
FDR,
ReplyDeleteSince this broke out to the upside, do you think it pretenses more bullishness than you would have otherwise thought?
FDR,
ReplyDeleteMaybe your first thoughts of top at 7900 will happen.
Just one question, does the expected sharp reversal occurs on the same time frame (time duaration) on which the initial diagonal occurred, or it can take longer?? or less time??"
ReplyDeleteThere are no hard time constraints in any EW pattern. There are some guidelines, but they tend to not apply when the major impulsive moves are downward.
Looks like it's not going to break lower...
ReplyDeleteI'm here for the out of the box market ideas. Technical analysis cannot be an exact science. At best it is only trying to predict the psychology of the market. That is subject to a lot of external events and not just the internal dynamics of the traders.
ReplyDeleteThe market can rally quite a bit more for a couple of days, so all you can really do is chose a good entry point for your shorts. Maybe not the absolutely most profitable entry point, but a good one.
That said before I enter, I want to see a couple of days of lateral moves so as to assure me that the bulls have stopped running. No lines, no diagonals - just plain simple.