The Quasimodo pattern (QM pattern) is a highly effective price action-based reversal pattern used by professional traders to identify potential trend reversals. It provides a high-probability trading setup by combining support and resistance levels, market structure, and liquidity zones. Unlike conventional chart patterns like head and shoulders, double tops, or double bottoms, the Quasimodo pattern offers a more refined entry point by leveraging market structure shifts.
Understanding the Quasimodo Pattern
The Quasimodo pattern is a market structure-based price action setup that occurs when the market forms a series of higher highs (HH) and higher lows (HL) in an uptrend or lower highs (LH) and lower lows (LL) in a downtrend. The pattern signals a potential reversal when the price breaks this sequence.
Key Characteristics of the Quasimodo Pattern:
- Uptrend Breakdown (Bearish Quasimodo)
- Price forms a higher high (HH) and a higher low (HL) as part of an uptrend.
- The market creates a new higher high (HH), reinforcing the bullish trend.
- Instead of forming another higher low (HL), price drops below the previous higher low (HL), breaking the bullish structure.
- A pullback occurs, reaching a key resistance level near the broken market structure, offering an optimal short entry.
- Downtrend Reversal (Bullish Quasimodo)
- Price forms a lower low (LL) and a lower high (LH) in a downtrend.
- A new lower low (LL) forms, confirming bearish momentum.
- Instead of forming another lower high (LH), price breaks above the recent lower high (LH), shifting structure.
- A pullback occurs, reaching a key support level near the broken market structure, providing an ideal long entry.
How to Trade the Quasimodo Pattern
Trading the Quasimodo pattern requires patience, confirmation, and the right execution strategy. Here’s how you can approach it:
Step-by-Step Trading Strategy
- Identify Market Trend & Structure Shift
- Look for a trending market (uptrend or downtrend).
- Observe the sequence of highs and lows.
- Identify a break in structure, indicating a potential reversal.
- Wait for Price to Return to the Quasimodo Level
- Once the structure is broken, wait for a retracement to the Quasimodo level.
- This area typically aligns with a support/resistance level, order block, or Fibonacci retracement level (61.8% or 78.6%).
- Look for Entry Confirmation
- Use candlestick confirmation (e.g., engulfing pattern, pin bar, or rejection wick) for a strong entry signal.
- Check for confluences like divergences, volume analysis, or liquidity traps.
- Set Stop Loss & Take Profit
- Stop Loss: Place it just beyond the invalidation level (above the resistance for shorts and below the support for longs).
- Take Profit: Aim for 1:2 or 1:3 risk-to-reward ratio by targeting the next significant support/resistance level.
Example of a Quasimodo Trade Setup
Bearish Quasimodo Trade (Short Setup)
- The market is in an uptrend, forming higher highs and higher lows.
- A higher high (HH) is created but then price breaks the previous higher low (HL), shifting the trend.
- Price retraces to the broken structure, near a key resistance zone.
- A bearish rejection candle forms, confirming a short entry.
- Stop-loss is placed above the new high; take-profit is set at the next support level.
Bullish Quasimodo Trade (Long Setup)
- The market is in a downtrend, forming lower lows and lower highs.
- A lower low (LL) is made but then price breaks the previous lower high (LH), shifting structure.
- Price retraces to the broken structure, near a key support zone.
- A bullish rejection candle appears, confirming a long entry.
- Stop-loss is placed below the recent low; take-profit is set at the next resistance level.
Advantages of the Quasimodo Pattern
- High Accuracy: Provides clear structural shifts for strong trade setups.
- Works on All Timeframes: Suitable for intraday, swing, and positional trading.
- Combines Market Structure & Liquidity: Helps traders avoid false breakouts.
- Great Risk-Reward Ratio: Can offer 1:3 or better trade opportunities.
Final Thoughts
The Quasimodo pattern is a powerful reversal trading strategy that helps traders identify trend reversals with high precision. By understanding market structure shifts and using proper risk management, traders can significantly improve their trading accuracy. When combined with other confluences like candlestick patterns, Fibonacci levels, and liquidity zones, the Quasimodo pattern can become a game-changer in technical analysis.
If you’re looking to enhance your trading edge, start incorporating the Quasimodo pattern in your technical analysis and refine your trading setups for better results.
Do you trade using the Quasimodo pattern? Share your experiences in the comments below!