The Quasimodo Pattern is also called Over & Under pattern. It is an advanced price action trading concept in the trading industry.

The Quasimodo pattern is more than a confluence pattern or entry technique than a trading strategy. It uses to confirm the trader’s bias.

If you combine this pattern with your trading strategy, it increases your trading odds & boosts your confidence level. It helps you to make better decisions on time as well.

For example, If you spot a Quasimodo pattern near a level of support or resistance or with divergence, it increases the trader’s confidence or trading probability.

Many supply & demand traders use this pattern to identify the strong tradable zones. When they find the Quasimodo pattern with strong supply or demand zones, they execute the trade with greater confidence. It provides a great Risk Reward ratio potential as well.

Quasimodo pattern does not appear all the time, but when this happens, traders should not ignore it. It is one of the most reliable and powerful patterns to trade.

What Is Quasimodo Pattern in Forex?

Quasimodo Pattern is also called as OVER & UNDER Pattern. It is a reversal pattern that is created after a significant obvious trend. When a series of higher high, higher low, or lower high lower low is interrupted, Quasimodo Pattern is created. It is a double-ended cheater strategy. It is used as an intraday price turning point. So the Intraday traders can use it as an advanced price action trading pattern.

Quasimodo is one of the most profitable chart patterns in the forex. It repeats itself all the time. The key is to identify, and most importantly, react to them, when the trading opportunity arises.

Types of the Quasimodo chart pattern

As with the head and shoulders pattern, there can be two types of the Quasimodo chart pattern, depending on the trend it appears and the type of signal it generates:

• The bearish Quasimodo chart pattern: This is like a deformed variant of the head and shoulders pattern. It is formed at the end of an uptrend and indicates a potential reversal to a downtrend. Like the head and shoulder pattern, it consists of three swing highs, with the middle one being the highest, as well as two swing lows, with the second low being significantly lower than the first. The second swing low being lower than the first low and the third swing high being lower than the second high (a lower swing low and a lower swing high) show that the uptrend is likely over. Shorting at this level presents the best risk/reward ratio with a tight stop loss on a break and close above the middle swing’s resistance level.

• The bullish Quasimodo chart pattern: This appears at the end of a downtrend and indicates a potential reversal to the upside. So, it is like the inverse head and shoulder pattern, consisting of three swing lows, with the middle one being the lowest, and two swing highs, with the second high being significantly higher than the first. The second swing high being higher than the first one and the third swing low being higher than the second low (a higher swing high and a higher swing low) show that the downtrend is likely over. Taking a long position at this level present the best risk/reward ratio with a tight stop loss on a break and close below the middle swing low’s support level.

 

How the Quasimodo chart pattern works

The Quasimodo chart pattern shows a shift in the characteristics of the price structure of a trend, which may indicate an imbalance between the supply and demand forces and the likelihood of a trend reversal.

Usually, the market structure in an uptrend consists of a series of higher swing highs and higher swing lows, while that of a downtrend consists of lower swing highs and lower swing lows. The Quasimodo pattern shows a break of that structure. A bearish Quasimodo shows the emergence of a lower swing low and a lower swing high, which are characteristic of a bearish trend, in a previously up-trending market. This shows that a reversal to the downside is likely. The opposite happens with a bullish Quasimodo pattern in a downtrend — the emergence of a higher swing high and a higher swing low, which are characteristic of a bullish trend, shows that a bullish reversal is likely.

Difference between the Quasimodo chart pattern and the head and shoulder pattern

The two key differences between the Quasimodo pattern trading and the Head and Shoulder pattern are as follows:

1. The extent of the second swing low relative to the first swing low: In the Head and Shoulder pattern, both swing lows end around the same level, making the neckline support level more or less horizontal. In the Quasimodo pattern (bearish), on the other hand, the second swing low is much lower than the first one, which disfigures the head and shoulder pattern. This also holds true when you compare the inverse head and shoulder pattern with the bullish Quasimodo pattern.
2. The entry techniques: The classical entry method in the head and shoulder pattern is the breakout below the neckline, which signifies a lower low and then completes a bearish formation. But given the already formed lower low in the Quasimodo pattern, the formation of a lower high (at the third swing high) completes a bearish formation, so traders look to enter their short positions at that level — many use reversal candlestick patterns, such as the shooting star or bearish engulfing as the entry trigger at that level. The entry at the level of the third swing high offers a better risk/reward ratio than the breakout entry used in the head and shoulder pattern.

Where does it come from (History)

As we stated before, the Quasimodo price structure is very similar to the head and shoulders pattern. It is, in fact, a type of malformed head and shoulders patterns, which is where it got its name from — the hunchback character Quasimodo.

The second swing low, which extends much lower and gives the supposed neckline a downward slant, depicts a crooked or malformed Head and Shoulder pattern.

The first trader to use the pattern is not officially known but we believe that many traders started using it and found out that it worked.

Quasimodo indicator?

The good thing about the Quasimodo trading strategy is that you don’t have to use complicated indicators and tools to trade it. You just need the trendlines and the Fibonacci retracement tool to trade the chart pattern.

Trendlines can help you delineate the trend, and you use the Fibonacci tool to identify the key retracement levels where the third swing could get to before reversing. Ideally, the third swing is expected to get to the first swing level, but in some cases, it may not get there. And when you attach a Fibonacci retracement tool, you find out that it made a 50-61.8% retracement of the second (middle) swing. The 50-61.8% retracement level usually serves as a support/resistance level.

Example of Quasimodo trading strategy

Here are the criteria for entering a short position following a bearish Quasimodo pattern in an uptrend:

• A visible prevailing uptrend marked by a series of higher highs and lows
• A break in the market structure — a lower swing low followed by a lower swing high that ends around 61.8% Fibonacci level, marking a sort of right shoulder.
• Wait for a sign of downward price reversal, such as the RSI or stochastic coming down from the overbought level, or a bearish reversal candlestick pattern, such as the shooting star or bearish engulfing.
• Place a sell order once the trigger forms
• You may place your protective stop-loss above the last higher high (head).
• Your profit target can be near the first valley of the chart pattern.

The criteria for the Quasimodo buy signals can be summarized as follow:

• A visible prevailing downtrend marked by a series of lower highs and lows
• A break in the market structure — a higher swing high followed by a higher swing low that ends around 61.8% Fibonacci level
• Wait for a sign of an upside price reversal, such as the RSI or stochastic rising from the oversold level, or a bearish reversal candlestick pattern, such as the hammer or bullish engulfing.
• Place a buy order once the trigger forms
• You may place your protective stop-loss below the last lower low (head).
• Your profit target can be near the first high of the chart pattern.

Pros and cons of Quasimodo

The pros of the Quasimodo pattern include:

• It provides early entry
• The profit target is known
• It offers a good reward/risk ratio
• It is easy to identify and trade

The cons include:

• It is traded manually
• The strategy is difficult to code into a trading algorithm

 

 

 

 

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.