Leading diagonals are patterns formed out of five waves and they are part either of a first wave of a larger degree or of an a wave of a correction.

Leading diagonals rules are important as, like in the case of an impulse, they need to be followed strictly before labelling a structure as being a leading diagonal. In order to be considered a leading diagonal, the following rules need to be respected:

• diagonals move between W1-W3 and W2-W4;
• the first wave of a leading diagonal must be an impulse or a leading diagonal;
• the second wave of a leading diagonal may be any corrective pattern except a triangle;
• the second wave must be less than the first wave by price;
• the third wave in a leading diagonal must be an impulse;
• the third wave of a leading diagonal must be bigger that the second wave by price;
• the fourth wave may be any corrective pattern;
• the second and the fourth wave must overlap or be within 10% of doing so;
• the fifth wave of a leading diagonal must be an impulse or an ending diagonal;
• the third wave cannot be shorter that both the first and the fifth wave;
• the fifth wave must be bigger than 80% of wave four by price;
• the fifth wave of a leading diagonal is never the longest;

the fifth wave of a leading diagonal is always smaller than the third one by price.

These rules are mandatory when trying to label a structure as being a leading diagonal and in the recordings that will come with this chapter I will take a look at a recent possible leading diagonal we have on the usdcad daily chart and will try to explain each rule in detail to see if it is applying on the price pattern.