Wave 5 of an Elliott impulse often terminates with momentum divergence. Price makes new extreme while RSI/MACD show weaker readings than wave 3. This signals trend exhaustion and potential ABC correction entry opportunity.
Indicators Used
RSIMACD
Rules
📉 Short Wave 5 Top
- Clear 1-2-3-4 structure visible with wave 3 being the strongest momentum
- Price enters wave 5 territory (above wave 3 peak)
- RSI(14) at wave 5 high < RSI at wave 3 high (bearish divergence)
- MACD histogram peaks lower than wave 3 peak
- Bearish reversal candle at wave 5 top (pin bar, shooting star)
- Enter short on confirmation candle close
- Stop: above the wave 5 extreme high
- Target: wave 4 low first, then wave 1 territory
Divergence
Required
Wave 4 Low
First Target
💡 Pro Tip
The cleanest Elliott divergence occurs on the timeframe one step higher than where you're trading. If you trade the 1H, look for divergence on the 4H. Intraday divergences on the trading timeframe alone have too many false signals.