Dialogue is characters speaking to each other, and unless it’s reported dialogue, it takes place in scene.
Dialogue should advance your plot.
It cannot be mundane.
It can be used for showing character, passing along information, and, ideally, only uses the dialogue tags “he said” and “she said,” although you can break that loose rule as you get to master dialogue.
Dialogue should not be where your characters provide information dumps to the reader.
Here's an example from my novel, THE LOSSES, that exemplifies some of what we're talking about in the above bullets:
They stop into Louise’s little shop, tell her their kids are here, more on the way, Harvey admiring the amethyst pendants while Julianne and Louise stare at the ascending rows of Matryoshka dolls that look like rainbows crashed into armless women wearing babushkas.
Harvey says, “It means not intoxicated,” and looks back at Julianne, at Louise.
“What does?” says Julianne, looking over her shoulder but still bent over the rainbows.
“Amethyst,” says Harvey, pointing at the purple crystals behind the glass. “It comes from the ancient Greek. ‘A’ is ‘not,’ and ‘methustos’ means ‘intoxicated.’ Not intoxicated. Not drunk.”
“I didn’t know that,” says Louise, surprised. “Been here years and that’s the first time I ever heard that.”
“He’s a wealth of knowledge, my Harvey,” says Julianne. And Harvey, moving down the glass
display, says, “You have half the gemstones on planet earth here, Louise.”
Louise says, “And yet, no one’s buying!”
He wants to say, “You can’t charge an arm and a leg for pretty rocks,” but says, “Tough times, I suppose,” as if the words have ever really had much meaning either to her or anyone else with wares to vend.
For a moment Julianne tenses, thinking, and horrified, that Harvey may bring up Louise’s impending foreclosure.
The dialogue and the scene and setting in general let's us know a little better who Harvey is, Julianne's relationship to him, and a little bit about Louise and her shop. We learn Harvey is educated, we learn Louise's store isn't doing all that well, and we learn Julianne's relationship to Harvey, from her perspective.
Indirect dialogue – is a summary of dialogue. It’s passing knowledge to the reader that a conversation took place.
An example of indirect dialogue might be something like "Jim looked at his hands. He told his mother he'd done something stupid, that things had just happened. He described how Marty came in and started yelling at everyone, that it'd take just a second for him to tell his brother to bring Rufus in. I tell him to come in, and that's it. It's all over, he said.'"
Dialect is language specific to a particular region or people. Dialect can include specific words or phrases, pronunciations, and so on. Use dialect sparingly in your fiction.
And here's an example of dialect from William Faulkner's THE SOUND and THE FURY:
Keep your hands in your pockets, Caddy said. Or they'll get froze. You dont want your hands froze on Christmas, do you.
"It's too cold out there." Versh said. "You dont want to go out doors."
"What is it now." Mother said.
"He want to go out doors." Versh said.
"Let him go." Uncle Maury said.
"It's too cold." Mother said. "He'd better stay in. Benjamin. Stop that, now."
"It wont hurt him." Uncle Maury said.
"You, Benjamin." Mother said. "If you dont be good, you'll have to go to the kitchen."
"Mammy say keep him out the kitchen today." Versh said. "She say she got all that cooking to get done."
Notice the Southern word usage, how the characters speak, syntax, and so on.
Characters talking past each other/not addressing what the person they’re speaking to is saying, is a great way to show avoidance and distraction.
Here's an example of characters talking past each other:
"I'd like to go to the movies. There's a new horror flick and it looks good."
"Did Bill call? He said he was going to call."
"It's the third one in the series, and it looks like it's going to be the best one yet."
"He owes me money."
June shook her head and stared at him for a second before waving her hand in his face.
"Hello," she said. "Anyone home?"
There are other ways of writing dialogue, but the best way to learn how to write great dialogue is to read great dialogue. Pick up your favorite novel and see how the author creates tension or passes information through what the characters are saying to each other. Practice scenes where all your characters do is talk to each other, with minimal action. See where it leads them. You never know what they might say.
Happy Writing.
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