The Elliott Wave & MACD strategy is a highly effective trading method that combines the structural insight of Elliott Wave Theory with the momentum-based confirmation of the MACD (Moving Average Convergence Divergence) indicator. This dual approach enables traders to identify trend phases, pinpoint reversals, and validate wave counts with confidence, making it suitable for swing trading and trend-following strategies across all markets.

What Is the Elliott Wave & MACD Strategy?

This strategy applies Elliott Wave counts to identify market phases (impulses and corrections), then uses the MACD to confirm the strength or weakness of a trend. While Elliott Waves provide the structure of the market, MACD reveals momentum dynamics—critical for confirming impulsive waves and spotting divergence at potential reversal points.

Used together, they help traders confidently spot:

• High-probability trend continuations
• Reliable reversal points (especially after Wave 5)
• Momentum shifts during corrections

Elliott Wave Overview

According to Elliott Wave Theory:

• A trend consists of five waves in the direction of the move (Waves 1–5)
• Followed by a three-wave correction (Waves A-B-C)
• Wave 3 is usually the strongest and longest
• Wave 5 often ends with reduced momentum and divergence

MACD Indicator Overview

The MACD consists of:

• MACD Line (12 EMA – 26 EMA)
• Signal Line (9 EMA of MACD)
• Histogram (difference between MACD and Signal Line)

It identifies:

• Momentum strength
• Bullish and bearish crossovers
• Divergence between price and momentum (a key reversal signal)

How to Use the Elliott Wave & MACD Strategy

Step 1: Count the Waves

• Identify a potential five-wave structure.
• Use Wave 1 to 3 as confirmation of trend direction.
• Anticipate Wave 5 completion with divergence.

Step 2: Use MACD to Confirm Impulsive Waves

• During Wave 3, MACD should expand sharply, showing strong momentum.
• During Wave 5, MACD often shows divergence—price makes a new high (or low), but MACD does not.

Step 3: Look for MACD Reversal Signal

• In bullish structures, look for MACD bearish divergence at Wave 5.
• In bearish structures, look for bullish divergence.
• Watch for a MACD crossover (MACD line crossing signal line) as confirmation of trend reversal.

Step 4: Execute the Trade

• Entry: After MACD crossover and divergence confirmation at Wave 5.
• Stop-loss: Just beyond Wave 5 high or low.
• Target: Use previous support/resistance or Wave 2/Wave 4 levels as initial take-profit.

Step 5: Confirm ABC Correction

• After Wave 5, the market typically enters an ABC corrective phase.
• MACD generally flattens or reverses direction during this phase, further supporting exit or counter-trend entry.

Example Setup

1. Identify a bullish five-wave impulse on a 1-hour chart.
2. MACD shows strong momentum in Wave 3.
3. Price forms Wave 5 with a higher high, but MACD shows a lower high — bearish divergence.
4. MACD crosses below the signal line.
5. Enter a short trade at the close of the crossover candle.
6. Set stop above the Wave 5 high, and target the Wave 4 low or the 50% retracement of the full move.

Benefits of the Elliott Wave & MACD Strategy

• Momentum + Structure: Combines market psychology with mathematical confirmation.
• High Accuracy: Divergence at Wave 5 is a reliable reversal signal.
• Improved Timing: MACD crossovers prevent early or late entries.
• Multi-timeframe Use: Works on daily, hourly, or even intraday charts.

Common Mistakes to Avoid

• Forcing Wave Counts: If the market doesn’t show a clean 5-wave structure, avoid trading the setup.
• Ignoring MACD Divergence: Don’t enter at Wave 5 unless divergence and crossover confirm the reversal.
• No Stop-Loss Discipline: Always define risk based on structural points, not just price percentage.

Conclusion

The Elliott Wave & MACD strategy offers a complete framework for understanding price behaviour and confirming market momentum. By aligning structural analysis with MACD signals, traders can improve the accuracy of entries and exits, especially around trend exhaustion points like Wave 5.

To learn how to master this strategy and apply it consistently across all market conditions, explore our full range of expert-led Trading Courses at Traders MBA and take your technical trading to a professional level.