THE WAVE PRINCIPLE

Detailed Explanatory Notes Expounding the Doctrine of R.N.Elliott's "The Wave Principle"

"No truth meets more general acceptance than that the universe is ruled by law. Without law it is self-
evident there would be chaos, and where chaos is, nothing is. Navigation, chemistry, aeronautics,
architecture, radio transmission, surgery, music - the gamut, indeed of art and science - all work, in dealing
with things animate and things inanimate, under law because nature herself works in this way. Since the
very character of law is order, or constancy, it follows that all that happens will repeat and can be predicted
if we know the law" - R.N.Elliott, (1871-1948).

Table of contents
 R.N.Elliott & his Discovery
 Universal Principles - Three Archetypes
 Natures-Law-Five-Characteristics
 The Wave Concept
 Definition of Trend
 Definition of Counter-Trend
 The 'Cycle'
 A Hierarchy of Pattern
 Thirteen Patterns
 Trend | Impulse (5's)
 Counter-Trend | Corrective (3's)
 Counter-Trend | Complex Corrective 'Double & Triple 3's (7/11's)

R.N.Elliott & his Discovery

The Wave Principle is Ralph Nelson Elliott's discovery that a specific and methodical repetition exists in the
markets continuing gyrations. His studies of this phenomenon led to the distilling of a comprehensive and
exact method of pattern recognition from which the seemingly chaotic activity of the markets could be
viewed in an orderly manner. Once identified, each pattern was named, defined and illustrated with
descriptions of how each are intimately linked together to form the basis of self-similar structures of larger
variation. The characteristics of this principle are not only found in the markets, but exist throughout every
material system - from the expanse of universal galaxies to the tiniest molecule.

Universal Principles - Three Archetypes

There are three Universal laws that govern these principles - the Law of Vibration, which states that matter is
continually in motion - the Law of Polarity, which describes the existence of positive and negative forces
emanating from a singular origin. These are searching for a state of equilibrium found by oscillating to the
mathematical ratio relationships of Nature's very own rhythm; that of the 'golden ratio' 0.618 - and the Law
of Compensation, that for every action there exists an opposite reaction, a balancing of forces that
compliments expansion and growth with regression and decay.

Natures Law - Five Characteristics

In order to conceptually understand the manner in which the Wave Principle is applicable to market price
behaviour, there are a further five characteristics that are essential to recognise.

 Non-linearity- pattern and form appear to unfold in punctuations of alternating directional movement
rather than flowing in a constant, linear straight line.
 Fractal - a term that describes patterns that are 'self-similar' on all scales of size. A fractal object
looks the same when examined from far away or nearby.
 Ratio & Proportion - patterns evolve and measure to a harmonious set of mathematical relationships.
  Relativity - patterns are repetitive and intimately linked together through their relative relationships.
Their continuity ensures each preceding sequence is the determinant factor for how the next evolves.
 Hierarchical - patterns build into varying degrees of size that are connected through their relative
proportionate relationships which necessitates the categorising of each into a hierarchical order so
that the correct sequence can be determined for ongoing development.

Once these elements of the market are understood, then it becomes easier for the mind to grasp the concept
of the qualities of order, proportion, symmetry and harmony found in them. As universal law states, for
every action there exists an opposite reaction in a continually expanding state, and this is mirrored in the
markets by the development of 'trend' and 'counter-trend', action and reaction or progression and
regression evolving over and over again. This basic of functions is at the core of the Wave Principle and all
patterns are subsumed by it. Some of the patterns define trend whilst others counter-trend - but all fall within
one of these two descriptions.

The Wave Concept

Elliott used the word 'wave' to describe the effects of price movement in his work. One definition describes a
'wave' as … a temporary occurrence or increase of a condition, emotion or influence … the passage of
undulating motion… a single curve in the course of this motion…. This aptly describes the visual necessity
to individualise a segment of market price movement even though any 'wave' is both a component and
contains components of its surroundings.

Definition of Trend

Progress or 'trend' is defined by a series of movements that unfold into five wave patterns. This process is
not exclusive to one direction - a trend can develop in either an advance or a decline. A requisite though
is that it must develop so that its measurements expand activity, so that the termination point is distant
relative to its starting point. In its entirety, a five wave pattern is described in Elliott terms as an 'impulse' -
to convey the image of an indefinitely large force acting for a very short time but producing a finite change
of momentum.

Each wave is allocated a number in an ascending sequence from the point of origin, 1-2-3-4-5. Wave 1
establishes the direction of the ongoing movement, the following waves then alternating so that when the
entire pattern is viewed in isolation, waves 1,3 and 5 constitute trend by moving in the same direction as
the overall movement, and waves 2 and 4 in an opposite direction each constituting counter-trend. Waves 1,
3 and 5 subdivide into a 'five' wave pattern whereas waves 2 and 4 become the 'corrective' wave components
within an overall 'impulsive' structure and must therefore subdivide into a 'three' wave pattern - this
distinction of five waves defining 'trend' and three waves as 'counter-trend' is the foundation of non-linearity
(refer 'Natures Law - Characteristics', above) (see activity left of black-dotted vertical line in fig's #1 & #2).

fig #1 Full Cycle - Uptrend

fig #2 Full Cycle - Downtrend

Definition of Counter-Trend

Regress or 'counter-trend', also termed as 'correction/corrective' is determined by a series of movements

that unfold into three wave patterns. This process is not exclusive to one direction - a counter-trend can
develop in either a decline or an advance. Its requisite though is that it measurements consolidate activity
to create an effect of contraction - but this can only conceptually occur relative to its position of the
preceding 'impulse'. This is because even three wave sequences are seen to make progress when viewed in
isolation.

Each wave is allocated a letter in an ascending sequence from the point of origin, A-B-C. Wave A
establishes the direction of the ongoing movement, the following waves then alternating so that when the
entire pattern is viewed in isolation, waves A and C constitute trend by moving in the same direction as
the overall movement, whilst wave B in an opposite direction constituting counter-trend. Therefore, waves
A and C become the 'impulse' wave components within an overall 'corrective' structure and must therefore
subdivide into a 'five' wave patterns. Wave B subdivides into a 'three' - (see activity right of black-dotted
vertical line in fig's #1 & #2).

Trends and counter-trends share a distinctive commonality - the substructures that identify them contain
sequences of alternating five and three wave patterns. Their distinguishing characteristic however, is
derived from the amount of 5's and 3's that develop. This results in a significant fact - whether a sequence
unfolds as a 5 or 3 depends solely on its relative position to its larger counterpart.

The 'Cycle'

When a five wave sequence has ended, it must be followed by a three wave sequence of opposite directional
movement totaling eight waves and completing what is known as a 'cycle'. This forms the basic component
within a larger, self-similar pattern so that the five wave sequence becomes wave 1, and the three wave
sequence becomes wave 2 of another but larger cycle process. This process is a continuous one, so that
smaller waves become the components of their larger counterpart - ad infinitum.

As long as progress continues, the process of building to greater degrees continues. Equally true is that of
the reverse process where larger patterns continually subdivide into lesser degrees until price data is at
viewed at the shortest possible time fragment. Therefore, all waves are both components of a larger pattern
and are themselves a larger pattern that contains smaller component waves. This typically characterises the
fractal nature of how the markets evolve where the basic form is maintained throughout every degree of
magnitude - self-similar patterns existing and repeating at all levels.

Therefore, the essential underlying tendency of the Wave Principle is that action in the same direction as the
existing degree of trend (up or down) develops in five waves, whilst reaction against the existing degree of
trend (up or down) develops in three waves.

A Hierarchy of Pattern

Patterns build into varying degrees of size that are connected through their relative proportionate
relationships which necessitates the categorising of each into a hierarchical order so that the correct
sequence can be determined for ongoing development. Elliott discerned and subsequently named nine
degrees of waves that had practical value at that time. Today, we can extend his list as real-time data can be
manipulated to show patterns building from the smallest time periods. Elliott's list begins with the largest
waves and descending in order. The font/typeface used for numbers and letters however is our own, suited to
the use of a computer. Any system can be used however - the main importance is to know the hierarchy of
the order used. (see fig #3)

From a practical standpoint, the use of this system of nomenclature enables the identification of the exact
position of the market at any time within its overall progression. Terminology used in this process uses the
name and number/letter of each degree of wave, e.g. …minor wave iii. of Intermediate wave (1) of Primary
wave A is currently in progress….

Thirteen Patterns

(see fig #4)

Elliott originally documented eleven basic but specific patterns that replicate in the markets - not exactly, but
in form. This excludes the 'sideways' double and triple three variations that we find so rare in actual
historical price movement as to question their very existence.

Through empirical analysis and recorded documentation, this list adds two other patterns - the 'expanding'
diagonal and the 'running' flat. Our current list therefore numbers the complete list as thirteen. By observing
these graphically, composing them into their respective hierarchical order and applying them to certain
governing rules, it is possible to forecast future activity in a two-dimensional way - pattern and price. Each
pattern is assigned a shortened code that appears after their definition, e.g. Impulse - Expanding
(ImpExp5W), see also WaveSearch. As follows:

Trend | Impulse (5's)

There are two archetypal impulse patterns, 'Expanding' & 'Diagonal'.

The expanding impulse consists of 5 waves but one sequence (1, 3, or 5) 'extends' or measures larger than
the others whilst (quite often, but not mandatory) visible fractalisation occurs, with a subset five wave
sequence embedded within, making the overall appearance nine waves. This is known as a 'derivative' of the
archetypal five wave structure. Within the extended wave, fractalisation can also occur at additional smaller
degrees of trend, increasing the overall appearance to thirteen or seventeen waves. Despite extended waves
often unfolding into the fractalised process, the overall appearance of 'form' and structure does not change its
basic elements of a 5 wave sequence of 'like for like' degrees. This uniformity categorises the expanding
impulse as just one of the two archetypes. (see fig #5)

The diagonal itself forms into two distinct pattern variations; the 'contracting' and 'expanding' type shapes.
Both retain consistency insomuch they subdivide into 5 wave sequences, but different to the expanding
impulse pattern because 'expansion' is not visible in its structure because the price activity of waves 1 and 4
'overlap' or close the gap that price expansion (in the 3rd wave) would otherwise prevent. Their consistency
in 'form' means bundling them together and listing them as just one 'archetypal' pattern, but because their
shapes are quite different, mirror images of each other even when comparing 'like for like' degrees of trend,
they must be separated into two distinct types. The derivative of the diagonal is, like its expanding
counterpart, dependent on the fractalisation process. Distinct differences of pattern contained in the impulse
wave sequences, 1, 3 & 5 determine the location of the diagonal - either as the beginning sequence of a
larger pattern, named a 'leading' diagonal, or as the ending sequence of a larger pattern, named an 'ending'
diagonal. For more information, see sub-headings below: Diagonal/Leading & Diagonal/Ending. (see fig
#5a)

This increases our list of impulse patterns to a total of three types:

 Impulse - Expanding | ImpExp5W | 'Derivative' 1st, 3rd or 5th 'extension' | ImpExp5Wext1st, 3rd or
5th
 Impulse - Diagonal (leading/ending) Contracting | ImpDLC & ImpDEC
 Impulse - Diagonal (leading/ending) Expanding | ImpDLE & ImpDEE
Counter-Trend | Corrective (3's)

There are three archetypal corrective patterns, 'Zig Zag', 'Flat' & 'Triangle' - each forms into two or three
additional variations or derivatives making a total of ten differing shapes or types. These counter-trend
patterns are commonly referred to as unfolding into 3's, or specifically, three main price-swings or waves
and are assigned 'letters', A-B-C [-D-E-X etc.] to differentiate them from the numbers assigned to impulse
patterns (see above). The zig zag and the flat 'family' unfold in this way, but the triangle generally consists
of five main price-swings or wave sequences (although we have discovered and documented some that form
only into 3's). The triangle is different to the impulse-diagonal because it develops as horizontal price-
activity and its location in waves 4, B or X provides additional distinctiveness.

The single zig zag is the most frequent recurring 'corrective' or counter-trend pattern and this is partly
because it must also unfold at the beginning sequence (wave A) of each of the other corrective pattern types.
The derivative of the zig zag is the double and triple patterns. These are replications of the single zig zag
interspersed with an 'X' wave, the separation sequence. Contrary to common belief, triple zig zag patterns
are uncommon, not frequently found recurring. (See fig #6)

The flat is characterised by R.N.Elliott as three price-swings of horizontal movement that develop 'against'
(opposite) to the prevailing (existing) trend labelled A-B-C. Its derivatives are the 'expanding' flat and the
'running' flat. The basic form remains the same, but waves B & C of the expanding flat variation briefly
exceed the original price extreme (price-range) established by wave A. Contrary to common belief, this is
the most frequently recurring pattern found developing in the markets of the 'flat' family. For the running
flat, wave B trades briefly beyond the price-extreme but wave C does not, ending within the price range of
wave A. (See fig #6a)

The triangle pattern is like its 'flat' counterpart, characterised by horizontal price movement but this time,
commonly evolving into five price-swings, labelled A-B-C-D-E. The triangle archetype is the 'contracting'
pattern with the widest part established by wave A at the beginning with wave E the smallest price-swing at
the conclusion, the entire process unfolding within two narrowing border lines completing before the 'apex'.
The derivatives are the 'ascending', 'descending' and the 'expanding' types. Each maintains the form of
horizontal A-B-C-D-E price-swings, with two boundary lines encompassing the price ranges with either
horizontal tops or bottoms combined with inclining/declining tops/bottoms. The expanding triangle is the
exception where successive waves to A sequentially trade slightly beyond the preceding sequence so that the
two boundary lines funnel outwards like the shape of a gramophone, the apex at the beginning with the
widest point at the end, as wave E. This is the mirror image of the contracting triangle. (See WaveSearch to
view the entire list of patterns). (See fig #6b)

 Zig Zag - single | ZZs

 Zig Zag - double | ZZd
 Zig zag - triple | ZZtv
 Flat - horizontal | FLh
 Flat - expanding | FLexp
 Flat - running | FLr
 Triangle - contracting | Tc
 Triangle - ascending | Ta
 Triangle - descending | Td
 Triangle - expanding | Tex

Counter-Trend | Complex Corrective 'Double & Triple 3's (7/11's)

In R.N.Elliott's original work, 'Nature's Law - The Secret of the Universe' 1946, he describes on page 17 the
nature of single, double and triple 3's. These patterns are classified as counter-trend but evolve into either 7
or 11 wave sequences. They fall into three groups, evolving with a slight slanting gradient, horizontal or
mixed consisting of both. The first two types can be subsumed (covered) by the derivatives of the zig zag
and the flat.
The mixed type consists of combining zig zags and flats, or flats and zig zags in alternating fashion. Even
triangles can be used to extend the list to 13 wave sequences. These patterns are considered extremely rare
and seldom develop with any recurring frequency in the markets. The double 3 pattern will consist of 7
waves or price-swings, for example, combining a single zig zag (3 waves), an intervening X wave (1) and a
horizontal flat (3). A triple 3 pattern will consist of 11 waves or price-swings, for example, combining a
single zig zag (3 waves), an intervening X wave (1) an expanding flat (3) another X wave (1) and finally a
horizontal flat (3). We have created a complete list of these combinations, 22 in all that can be viewed in
WaveSearch. (see two examples in fig #7).

 Combinations - double/triple threes (22 patterns complete the list)

Part II. - Coming Soon! In this next tutorial series we shall introduce the 'Pattern Identification Process'
and R.N. Elliott's 'Rules & Guidelines'.

EXPANDING DIAGONAL PATTERNS

By Peter Goodburn
Charts compiled & edited by Kamil Rajec

Expanding Diagonal Patterns - Do they really exist?

Table of contents
 Elliott's inclusion of the Contracting Diagonal
 The Expanding-Diagonal, a mirror image of the Contracting type pattern
 Triangle terminology - counter-trend vs trend impulse patterns
 First introduction of the Expanding Diagonal
 Indoctrination of Belief
 Can an Expanding Diagonal always be counted another way?
 Gold
 S&P 500
 Euro vs. Sterling (FX cross)
 Summary

Elliott's inclusion of the Contracting Diagonal

In R.N.Elliott's original treatise of The Wave Principle (1938), he introduces us to diagonal patterns for the
first time on page 21. Under the heading, "Triangles", Elliott describes the difference between horizontal
triangles that represent "hesitation" within an ongoing, progressive trend and diagonal triangles that form the
concluding 5th wave of a larger five wave sequence. [see fig. #1] In both instances, Elliott illustrates five
smaller sub-sequences within each pattern. We are familiar with counter-trend/corrective triangle patterns
subdividing into five swings, a-b-c-d-e as these are common events found in price activity. Interestingly,
Elliott describes the four different types of counter-trend/corrective triangles, two of which are the
contracting (symmetrical) and expanding (reverse-symmetrical) versions. Each is a mirror image of the
other, or in other words, is an inversion of the other. We have recognised this phenomenon whilst building
the Elliott Wave tutorial patterns for WaveSearch.

Tip: - Print out or hand-draw a contracting-symmetrical triangle, include the narrowing boundary lines
then simply turn the page over horizontally then hold up to the light and you will see the expanding-triangle!

The Expanding-Diagonal, a mirror image of the Contracting type pattern

The diagonal-triangle in current day EW folklore is often referred to as a rare pattern, but this is not true to
the keen observer, as they can be found repeatedly across many of the varying asset classes. Elliott drew an
illustration of the diagonal-triangle [see fig. #2] in the 5th wave location as a contracting type pattern, where
the price activity begins from the widest point and ends at the narrowest, almost to an apex. But he did not
describe or illustrate its mirror image, or inverted counterpart that we refer to today as an expanding-
diagonal, where the starting point is narrowest and the widest at the completion of the pattern. So why did
Elliott make this omission when he clearly documented a similar mirror image/inversion for the horizontal
triangle pattern?

Perhaps it was simply that he had never observed one? Or as we imagine, he was still in the process of
formulating all the nuances of his theory - we can only speculate on the true answer. Nevertheless, one other
consideration that often comes to mind and that is access to data. Back in the 1930's - 40's, all data was
complied by hand, most of it on a daily basis, building daily bar or closing line charts. How fast is the
learning/observation curve under this restriction? We are now in the computer era with access to an almost
unlimited data feed of every market imaginable, covering a far wider historical data base, and most
importantly, data that builds into hourly and sub-hourly time-series. With this at our disposal, we can seek
and find much easier, and the probability of finding something like an expanding-diagonal is exponentially
increased - if it exists!

Triangle terminology - counter-trend vs trend impulse patterns

Before continuing, I'd like to make a distinction between the terms Elliott used to describe the horizontal
triangle and the diagonal triangle. In today's contemporary use, the term "triangle" is widely accepted to
define a counter-trend pattern, and yet we still use the term "diagonal triangle" to define an impulse (5 wave
trending) sequence. During the many years of teaching the Wave Principle, I have found students often
confused by this because both are distinctly different types of pattern, yet both incorporate the term
"triangle". To make it easier, I have dropped the association "triangle" when referring to the diagonal so that
a diagonal is either a generic leading-contracting/expanding diagonal or an ending-contracting/expanding
diagonal, leaving out the term triangle altogether.

First introduction of the Expanding Diagonal

In Frost & Prechter's original book published in 1978 entitled "Elliott Wave Principle", there is no mention
of the "expanding" diagonal, although it must be said that this book was by and large, a more ordered re-
print of R.N.Elliott's The Wave Principle with the main focus of reproducing the original work. The later re-
printed and expanded edition of 1990 did include a chart illustrating a "real-life" example of the Dow Jones
unfolding into an ending-expanding diagonal in the 5th wave position of a larger five wave impulse pattern
[see fig. #3], although no explanation of its introduction was attempted. But more importantly, it was
recognised and documented as a pattern existing within the doctrines of the Wave Principle.

The 20th anniversary edition of the same title adds a little more text, albeit brief information on the subject,
but curiously seeds doubts to its existence, "We have found one case in which the pattern's boundary lines
diverged, creating an expanding wedge...however, it is unsatisfying analytically in that its third wave was
the shortest...and another interpretation was possible...for these reasons, we do not include it as a valid
variation". The chart example referred to was the same hourly chart of the Dow Jones (data-series from
1980) as originally published in 1990. Are there so few examples of this phenomenon that this was the only
occasion where it could be studied?

Indoctrination of Belief

History is replete with examples of beliefs, no matter what they represent, being avidly protected or guarded
so that successive generations never question them anymore, just accept it. It is always easier to go with the
consensus. But I have made it a life rule to be open-minded about everything and to prove every assumption
to my satisfaction, or discard it. Sometimes you just have to assume the role of Copernicus, research and
investigate, then be brave enough to publish even though the establishment will offer scorn or worse.
Copernicus eventually discovered the heliocentric model of the planets, that the Sun, not the Earth was at the
centre of the celestial spheres. But to do this, he had to first break with age-old assumptions, beliefs - set
them aside and look afresh. Of course, his findings were considered heresy to the ruling members of the
Church, and to even utter this was blasphemy. No wonder Copernicus himself did not publish his defining
work until after death! But he was brave enough to meet the challenge, go headlong against the accepted
view and prove his hypothesis not only to himself but to the benefit of everyone.

Returning to the expanding-diagonal, the question remains, does it exist, can it have a place within the
Elliott Wave Principle? To my own satisfaction, I have proved that it does, and that it is more commonly
found unfolding that generally accepted. But you have to prove this to yourself. Yet, if the expanding
diagonal is a recurring pattern that is not so rare, why has it been discarded to the point of inexistence? The
answer maybe simple - because the old indoctrination prevented us looking for it. Why search for something
that your told does not exist?

Can an Expanding Diagonal always be counted another way?

Elliott Wave is a subtle methodology, with only a few hard-and-fast rules, but many guidelines to learn and
apply. It certainly has its detractors, but advocates too. I have found that the advocates share a few things in
common - they are creative thinkers, have an active imagination and find it quite natural to see things in a
hierarchical construct, are comfortable with the idea of fractalisation, self-similarity and cyclicity. When
examining the intricacies of counting waves, yes, there is often another way to label price activity from what
seems to be an expanding diagonal into something else. Certainly, in Frost & Prechter's single example, one
might come to the defence of the diagonal but realistically, yes, it could be re-labelled repositioning wave iv.
to the right so that it completes as a running flat pattern, with a more simplified advance to end the v. th /
fifth wave, or alternatively, relabeling the termination of minor wave iii. then describing wave iv. as a
triangle ending at what is currently wave b. within wave 5 of the expanding diagonal. This is not proof either
way, for what we require is other examples that cannot be easily explained other than what they appear to be
- expanding diagonal patterns.

Examples of Expanding-Diagonal Patterns

So lets take a look at some collected and stored from the past. These have been selected from the historical
archives of WaveSearch, and although many more are documented, will confine this examination to those
that display the certainty of identification.

Gold

The first example illustrates an ending expanding-diagonal pattern in gold prices during April-May 2004. It
is labelled as minuette wave [v] five within a declining five wave impulse pattern beginning from 406.35
and ending at 371.00 - [see fig. #4]. The importance of the entire pattern from 432.60 to 371.00 is that the
subwaves of the expanding diagonal cannot be explained or re-labelled any other way - they cannot be 4-5,
4-5, 4-5 sequences that end an expanding 13 wave impulse pattern because there did not exist any visible 1-
2,1-2,1-2 sequence at the beginning of the decline - [see fig. #5]. In particular, the reduction of counting
waves could be done to fit a more standard 5 wave impulse by incorporating a couple of running flat
patterns into the corrective sequences unfolding lower from 406.35, but then this creates another problem
because each of the two advances (389.18-399.88 & 377.20-395.88) that act as the end to the running flats
are visible overlapping zig zag (or multiple) sequences where they should be a visible five wave sequence
(flats subdivide a-b-c, 3-3-5). No, there is no way to "bend" this into something else - this is a true example
of an expanding diagonal, a type that occurs at the conclusion of the trend, an ending-expanding diagonal.
Almost as an afterthought I realised I have omitted an important point - there are Fibonacci ratios imbedded
within expanding diagonal patterns that also recur. There are a few but limited ways to measure the
finalisation of the pattern. One that I have found repeatedly is where the sum of waves 1-3 equate to the
same measurement as found in waves 2-5. This ratio is applied to this example gold chart to good effect -
prices traded within just half of a dollar of the low signalling the expanding diagonal's conclusion at 371.00.

S&P 500

The second example is of the S&P 500, part of an update released in October 1999 - [see fig. #6]. The entire
decline from 1420.14 to 1233.66 is a great example of a single zig zag pattern, subdividing a-b-c in minute
degree. From a fib-price-ratio point of view, this conveys a perfect 100% equality ratio measuring equally
waves a & c. Each sequence subdivides into fives waves of smaller, minuette degree, wave a as an
expanding five wave impulse, but wave c as an ending-expanding diagonal pattern. There can be no doubt as
to its identification - there really is no other way to identify this other than the expanding type diagonal. Key
aspects to consider - Frost & Prechter's concern in their example of the Dow Jones was that the third wave
was shortest, but in this S&P example, it is clearly larger than the first. Elliott did not illustrate the
subdivisions of impulse waves 1-3-5 within the ending-diagonal in The Wave Principle (1938) although
reference has been made later that he documented each sequence subdividing into a three wave pattern. This
is subject for debate, an issue we shall return to later, although it is appropriate to mention now that it is only
apparent in wave (III) three of the diagonal.

Euro vs. sterling (FX cross)

The third and final example illustrates an ending-expanding diagonal of a more contemporary period, the
currency cross Euro Vs. Sterling of November 2009 - [see fig. #7]. It is labelled as a 5th wave within a
larger expanding five wave impulse pattern that began much earlier from 0.8400 in June '09. It represents
the final advance before trend reversal. It begins from 0.9077 ending at 0.9414 and shows the expanding
characteristics of the diagonal where the narrowest point is at the beginning of the pattern, the widest at the
end. It is not always important for the price extreme [in this case, high] of a 5th sequence of the pattern to
join the tops of the 1st & 3rd waves - often, the 5th high [or low in a downtrend] can often be "isolated",
hanging mid-air to the right of the upper boundary line, but in this example, it is perfect. Can this pattern be
interpreted any other way? Impossible! The first movements higher containing waves [i] through [iv] cannot
be "bent" to fit a triangle for the larger minute wave 4, nor can the advance be labelled as a double/triple zig
zag as an "expanding" b. wave of a progressive flat as the ensuing decline was too large, and eventually
"overlapped" activity during the preceding advancing trend. One amazing characteristic of the 5th wave
within expanding diagonal patterns is the way it covers ground very quickly - it accelerates faster and often
in shorter time than that of the 3rd wave - this is true of this example. Note that we have measured the 5th as
unfolding by a fib. 123.6% ratio of the total amplitude of the 1st to 3rd wave high - very impressive.

Tip: - Print out this ending-expanding diagonal and simply turn the page over horizontally then hold up to
the light and you will see its mirror-image - the contracting-diagonal pattern!

Summary

When I re-read R.N.Elliott's The Wave Principle published in 1938 and of course his later treatise Nature's
Law of 1948, I often wonder what else he would have discovered had he lived longer and had access to the
masses of data that is obtainable today? Perhaps the expanding diagonal would be there amongst all the
other patterns, with subdivisions documented for each in his indelible style. One thing for sure, if we can
shed new light on the subject, incorporate aspects that remain governed by the true archetypes of the
Principles he laid down without contradiction, then we surely have a duty to share them and continue his
great work.