What is the Wedge Pop pattern?

The Wedge Pop, also called “The Money Pattern” by Oliver Kell, signals that a stock has bottomed and is starting a new uptrend.

The chart will begin to display accumulation volume as the price reclaims the moving averages. Once the market or a stock has bottomed, the price action will change character and begin following the Cycle Of Price Action.

As price volatility contracts, the stock will find resistance near the tightening moving averages. A new uptrend begins when the stock trades through the price range, reclaims the moving averages and exhibits increased accumulation volume.

Remember to apply the Cycle Of Price Action to the indexes and individual stocks. When an index displays a Wedge Pop, the leading stocks may be setting up a more traditional longer-term base.

How to Spot Reversal Confirmation

A stock’s low will always be unknown until after the fact. We don’t know that a stock has bottomed until we can confirm that a new uptrend has begun.

Remember, the bottoming process will be unique to the individual stock’s character and the market environment. The Reversal Extension exhibits capitulation with volatile price action, and then the price snaps back up into the moving averages. However, sometimes, we see more of a rounded bottom as volume decreases.

We will unlikely see a sustainable bottom until a stock rallies to test the moving averages and has a few days to retreat. This contraction in volatility creates a more actionable area.

The Wedge Pop confirms a change in character after the stock has bottomed when the price finds strength and moves up through the moving averages.

It is best to avoid a downtrend when the moving averages act as resistance, guiding the stock lower. The bottoming process may also be volatile and difficult to trade. Waiting for volatility to subside may set up a more actionable area.

Understanding Volatility Contraction

Before a new uptrend begins, price volatility contracts and the stock forms a tradable range. After a sharp rebound (the Reversal Extension), the stock consolidates beneath the moving averages. This creates a tighter trading range, often setting up a good buy zone.

During a selloff, moving averages like the 10-day and 20-day widen as the price falls. When the stock consolidates, these averages start to tighten, signaling a potential trend shift. A key sign of a new uptrend is when distribution volume decreases while accumulation volume picks up.

Forming a pivot: The ideal buy signal

A pivot point is a critical price level where a stock’s trend can either continue or change direction. This pivot forms as the price fluctuates between the lows and the moving averages, retesting both levels.

The Wedge Pop occurs at the first pivot point to break, signaling that the stock has changed character and is ready to begin its uptrend.

Trading through a pivot helps in two ways:

• If the price breaks above the pivot, the trend should continue upward.
• If the price fails and drops, the timing isn’t right yet.

Pivots provide solid tradable areas, allowing you to enter positions that favor the trend. If the stock breaks the pivot, ride the trend higher. If it fails, cut losses quickly.

Price breaking through a pivot sets the motion of the trend. Pivots and bases provide ideal tradable areas so we can ensure our position favors the trend.

Wait for the price to consolidate along the moving averages after a reversal.

If we take out the pivot, we should go higher. We shouldn’t own the stock if we fail here and can’t go higher.

Pivot points can also help us control our risk while maximizing gains.

• When the price breaks above, let the trend play out as it follows the Cycle of Price
• If the price breaks down, be quick to cut any losses

How to trade the Wedge Pop

Many traders mistakenly believe the Wedge Pop is simply about crossing the moving averages. Instead, focus on price bars and volume. Consolidation sets the level to trade against, while moving averages help guide the trend.

Look for confirmation as the price consolidates and forms a pivot. Enter on a strong price bar with increased volume when the stock breaks through the pivot. Getting in early allows traders to hold the position longer and benefit from the full price cycle.

Gaps: A powerful sign of momentum

Gaps between price bars occur when there’s an imbalance between buyers and sellers. Gaps show that “the street is caught off guard.” Unfilled gaps are especially powerful, indicating strong momentum and trend continuation.

Most Wedge Pops that lead to new, powerful trends start with gaps. Large gaps, combined with strong volume, confirm that the stock’s character has shifted, making them key indicators to watch.

Applying the Wedge Pop to indices and individual stocks

The Wedge Pop pattern isn’t just for individual stocks—it works on market indices too. When the overall index is bottoming, look for stocks with relative strength that are still near their highs.

As the index forms a Wedge Pop, the strongest stocks will break out from their bases and make new highs. This pattern is key in identifying leading stocks in the next market cycle.

The market followed a three-wave down correction ending in the Fall of 2023. Notice how the first two potential Wedge Pops failed with no increase in accumulation and consistent distribution volume. The Third Wedge Pop has three unfilled gaps.

When comparing CRWD at the same time frame, notice how the stock begins to trend. As the market continued to make lower lows, CRWD made higher lows and saw increased accumulation volume as it rode the moving averages higher.

Putting it all together

The Wedge Pop is a tradable confirmation that the market or stock has bottomed and will begin a new uptrend as it follows the Cycle Of Price.

Wait for volatility to contract after finding a low.

Buy a stock as it breaks through a pivot that forms against the moving averages.

Let the Cycle Of Price unfold, allowing the moving averages to guide the stock higher.

Be on the lookout for volume spikes and gaps. The accumulation volume and strong price action confirm the momentum.

Recognize the Wedge Pop on the general stock index and buy the leading stocks further along in their Cycle Of Price as they break out of bases.