When trading stocks, timing is everything. One strategy that seasoned traders like Oliver Kell use to capitalize on pullbacks is the EMA Crossback. By focusing on the 10 and 20-day exponential moving averages (EMAs), you can identify key moments to buy stocks when the price dips into these levels after a strong rally.

Let’s dive into how the EMA Crossback works and how you can use it to improve your stock-picking strategy.

What is the EMA Crossback?

The EMA Crossback refers to the first time the stock price retests its moving averages after a strong upward move, called a “Wedge Pop.” After a stock rises quickly, it typically consolidates—meaning it either moves sideways or drifts slightly downward. When the price touches the EMAs again, it creates an opportunity for traders to buy in with minimal risk.

First Consolidation After The Wedge Pop

After a Wedge Pop (a sharp upward move), the stock typically consolidates before making its next big move. The key here is watching how the stock reacts when it approaches the moving averages for the first time.

This consolidation forms a “pivot point,” where the stock can either continue upward or reverse downward. A strong stock will respect its moving averages, using them as a springboard to head higher. That’s why the EMA Crossback is such an important buying opportunity—it signals that the stock is ready to resume its upward trajectory.

Again, trading through a pivot can help guide us in two ways:

• If the price continues up through a pivot, the trend should continue in that direction
• If the price fails at the pivot and reverses lower, then the timing isn’t right yet

Moving Averages Support Price Action

From this point, you want to see the moving averages supporting the price as it advances.

The price will make new highs, fade into the moving averages, retest the highs, and then retest the moving averages. As the moving averages rise, watch for strength to push the price through the recent highs and continue upward.

The EMA Crossback works best when the price gently moves sideways, allowing the moving averages to rise to the price. Sometimes, there will be a slow drift downward into the rising moving averages.

How to Trade the EMA Crossback

Trading the EMA Crossback gives you a low-risk entry point early in the stock’s price cycle. Here’s how you can approach it:

• Identify the pullback: Wait for the price to dip back into the 10 or 20-day EMA after a strong rally.
• Watch for strength: Make sure the price is showing signs of stability or support near the moving averages.
• Set your stop-loss: Place your stop-loss just below the pivot or price bars. As the stock moves higher, raise your stop-loss to lock in gains.
• Use multiple timeframes: Confirm the stock’s strength by analyzing both shorter and longer timeframes to get a clearer picture of the price action.

Following the Cycle of Price Action

Buying at the EMA Crossback sets you up to hold the stock longer as it continues its price cycle. Stocks move through different phases, and buying early in the cycle allows you to ride the uptrend while keeping your risk low.

As the stock moves higher, you can adjust your stop-loss, locking in gains while still giving the price room to grow. Eventually, the price cycle will peak, but by that point, you’ll already have built in profit from buying at the EMA Crossback.

The Role of Discretion in Trading

o two stocks move in exactly the same way. While the EMA Crossback is a helpful guide, you still need to use your judgment. Some stocks may not follow the textbook pattern, so you’ll need to adapt your strategy based on what you see in the chart.

Keep an eye on the moving averages—they act as a visual guide for where the price could find support. But always wait for confirmation that buyers are stepping in before making your trade.

Using the EMA Crossback on Indices and Stocks

The EMA Crossback works not just on individual stocks but also on broader market indices like the S&P 500. When an index pulls back into its moving averages, the strongest stocks within that index are usually further along in their own price cycles, creating potential buying opportunities.

Leading stocks often break out from their consolidations when the market finds support at its moving averages. By keeping an eye on both the index and individual stocks, you can focus on the leaders that are poised for bigger moves.

Note how PTON reversed off its lows and popped through the moving averages before the SPY. When the price consolidated against the moving averages at the EMA Crossback, PTON continued its 500% move while the market slowly drifted higher.

Putting it all together

Incorporating the EMA Crossback into your trading strategy helps you avoid chasing stocks at their highs. Instead, you can buy on pullbacks when the risk is lower and the upside potential is higher.

Wait for the stock to pull back, see if it finds support at the moving averages, and then buy as the price starts to show strength again. By using this approach, you can enter trades early and ride the trend as the stock moves higher.