Experience Trading
on the Go
on the Go
Reading time: 8 minutes
The Quasimodo pattern is an established formation that some price action traders favour over ‘traditional’ support and resistance methods.
Although the pattern’s origin is unknown, some believe it draws its name from the fictional character Quasimodo: the main character of the novel, The Hunchback of Notre Dame, with the pattern’s shape portraying Quasimodo’s physique. You may have also acknowledged other traders refer to this structure as an ‘over and under’ pattern. Regardless of the structure’s name, its configuration represents a fakeout that can be traded upon returning to its left shoulder.
The Quasimodo pattern is a reversal structure used by price action traders across all markets and timeframes. It helps locate potential trend reversals and is widely employed in trending environments to ‘buy dips’ in uptrends and ‘sell rallies’ in downtrends.
For a valid Quasimodo pattern, you must ensure that the market traded is either in an uptrend or downtrend. This does not have to be a meaningful trend; it could simply be a noticeable up or down move.
The image below demonstrates the bearish Quasimodo and bullish Quasimodo formations; the focus here will be on the bearish Quasimodo formation (though the bullish Quasimodo pattern is essentially the same, only in reverse).
Leg 1 represents a bullish wave in an uptrend. There is no indication that a bearish Quasimodo pattern will form; this is simply a leg higher in the trend or up move. This is followed by a dip lower (leg 2). Similar to leg 1, there is no suggestion that a bearish Quasimodo pattern will form at this point; the dip will likely be viewed as a correction in the trend and may be bought into at support.
The push higher (leg 3) will be viewed as a continuation of the uptrend. However, once leg 4 forms a low, this is a warning signal that upside momentum may be losing steam. Leg 5 pencils in a pullback and brings us to the Quasimodo left shoulder, which is always drawn from the apex of legs 1 and 2 and extended through price to join leg 5 – namely the pullback.
Only once we see a price test of the Quasimodo's left shoulder do we know we have possible resistance and could see sellers step in from here.
Do not confuse the Quasimodo pattern with the head and shoulders pattern. A valid head and shoulders top requires three defined peaks, as shown above: the left shoulder, the head, and the right shoulder, which is something a Quasimodo does not need to form a valid pattern. All the bearish Quasimodo requires is a left shoulder, a head, a lower low, and a subsequent pullback to the Quasimodo left shoulder level.
The neckline of a head and shoulders top is generally best positioned horizontally or in an ascending position (as above). This is because the entry point of a head and shoulders top is caused by a break of the neckline (the protective stop-loss order tends to be positioned above the right shoulder). A downward-sloping neckline, as what you would get with a bearish Quasimodo, would place the trader at a somewhat disadvantage in terms of entry and stop placement.
But in any case, Quasimodo sellers would already be in a short position (sell) before the break of the head and shoulders top neckline. Traders selling the Quasimodo formation would generally position their protective stop-loss orders above the pattern's high (leg 3). As for profit objectives, each trader will be different. Some target opposing resistance or support levels, while others trail their position using moving averages. This is something the trader will have to decide in testing. Before moving to a live trading account, a thorough backtest of the Quasimodo formation is recommended.
Although the Quasimodo pattern is used as a trend reversal pattern, it is also frequently used to spot entries into an existing trend.
First and foremost, Figure 1 exhibits an example of a bearish Quasimodo formation on the H1 timeframe of the EUR/USD currency pair (euro versus the US dollar) that helps pinpoint a short-term trend reversal. This pattern clearly shows that the uptrend has deteriorated to a point where selling could be an option.
Figure 1 – Chart Created by TradingVIew.
However, as noted, many traders use the Quasimodo pattern to help pinpoint an entry into an existing trend. Attempting to pick the tops and bottoms of a trend with a Quasimodo formation can be difficult.
How one identifies a trending market will be trader-dependent; some prefer to use textbook price swings (e.g. higher highs and higher lows for an uptrend and lower lows and lower highs for a downtrend), while others opt for technical indicators, like the Average Directional Index (ADX) or moving averages.
As you can see in Figure 2, the daily timeframe of the EUR/USD, an uptrend began in October 2022, shown by way of a higher high and a higher low. In early 2023, Quasimodo traders got the opportunity to enter long (buy) the EUR against the USD based on a correction in the uptrend that found support at a Quasimodo pattern. Despite approximately two weeks of consolidation at the Quasimodo support level, buyers eventually pushed price action higher to resume the uptrend.
Figure 2 – Chart Created with TradingView
So far, the article has highlighted standard ways of trading the Quasimodo pattern. However, ignored Quasimodo levels can also form part of advanced trading strategies.
As its name implies, an ignored Quasimodo level is a Quasimodo pattern in which price surpasses the Quasimodo support or resistance and engulfs the head of the formation (thus negating its use). Assuming the break of the Quasimodo level was swift and ‘clean’ (there was no immediate retest before pushing beyond the head), a retest of the level is often seen and can offer a high-probability way of trading using the Quasimodo pattern. These tend to be placed in line with the trend of the market traded.
As per Figure 3, the EUR/USD currency pair formed an H1 Quasimodo support pattern in early January 2024. Mid-January, nevertheless, saw price run through the level, ignoring it and engulfing the head of the pattern shortly after. On 18 January, price action retested the underside of the breached level in line with the current downtrend, providing traders with a key level of resistance to trade.
Figure 3 – Chart Created with TradingView
Like all technical approaches, it is generally best to trade based on as much evidence as possible.
This means potentially combining the Quasimodo pattern with trend direction, as shown in Figures 2 and 3. Advanced trading strategies also include additional support and resistance from multiple timeframes, particularly higher timeframes, as well as Fibonacci studies, technical indicators, and fundamental analysis.
1. What is a Quasimodo pattern?
The Quasimodo pattern represents a reversal pattern used among price action traders across all markets and timeframes. It is used to help identify trend reversals and to enter existing trends. If ignored, Quasimodo patterns can also be traded.
2. Does a Quasimodo trading pattern guarantee a reaction?
No. There are no guarantees in trading or investing. A Quasimodo pattern may put the odds in your favour and can provide a positive return over a sample of trades.
3. Can a Quasimodo pattern be used in isolation?
While some traders undoubtedly claim to trade the financial markets successfully using only the Quasimodo pattern, most traders combine Quasimodo patterns with additional tools.
Access 10,000+ financial instruments Auto open & close positions News & economic calendar Technical indicators & charts Many more tools included
By supplying your email you agree to FP Markets privacy policy and receive future marketing materials from FP Markets. You can unsubscribe at any time.
Source - cache | Page ID - 40644
