Quasimodo trading setup or QM is an advanced reversal pattern in which its formation signals the end of a trend, and most traders use its variants to improve trading results in the forex market.
Intro
In the ever-evolving forex world, traders are constantly looking for strategies and patterns to excel in predicting market movements. One of these patterns noticed among Forex market enthusiasts is the Quasimodo pattern, abbreviated as QM. The Quasimodo pattern is a unique and fascinating technical pattern that can provide valuable insights into market reversals and trend endings if understood and applied properly. This pattern is named after the hunchbacked Quasimodo in the book "The Hunchback of Notre-Dame '' by Victor Hugo. We will learn about the Quasimodo pattern and its use in forex trading in this article. Stay tuned.
Contents
Quasimodo trading strategy
The difference between the Quasimodo setup (QM) and the Head and Shoulders pattern
How to enter a trade with the Quasimodo pattern
Quasimodo trading strategy
Below is the Quasimodo trading setup in its simplest form, which is a reversal pattern and occurs at the end of trends:
Generally, we have two types of Quasimodo setup:
- Bullish Quasimodo setup
- Bearish Quasimodo setup
Suppose we are in an uptrend, and the price is creating higher ceilings and floors until the price reaches a strong resistance, and this level causes the price to reverse and break the last price floor with a candlestick closing. In other words, a CHOCH occurs. Now, the price comes back as a last-ditch effort and usually reaches the green line shown in the picture, which causes the formation of the Quasimodo pattern. Further, we expect the price to drop in this area. The opposite of these steps is correct for a downtrend, and we expect the price to ascend after the price reaches the designated area. Note that in this pattern, the left shoulder doesn't need to be equal to the right shoulder, and the two can be unequal.
Two essential conditions are needed to form this pattern, which are:
- The last reversal wave must correct at least 50% of the breakout wave.
- The last wave's formation should occur at a suitable time interval and mustn't be too long. One should consider the time interval for the left and right shoulder formation.
Read More: Learning about Market Structure, the basis of all trading strategies
The difference between the Quasimodo setup and the Head and Shoulders pattern
When the Head and shoulders pattern forms, we will have the QM pattern if the second wave is Engulfed completely. The second difference is the entry point of these two patterns, which occurs in the Head and Shoulders setup a little later than the Quasimodo pattern.
How to enter a trade with the Quasimodo pattern
To enter a trade with the Quasimodo pattern, check the general market conditions and fundamental news and then determine the trend. Now, wait for a CHOCH to occur. According to the points reviewed, you can enter a trade in the new trend's direction at the right price if all conditions are met. You can use retracement Fibonacci levels to find the right entry point. To use Fibonacci levels in your trading platform, after selecting the Fib Retracement tool, draw it from the beginning to the end of the breakout wave to identify significant levels (usually 61.8% and 78.6%) in which we expect the price to return.
Summary
In this article, we reviewed the Quasimodo (QM) trading setup. We checked the essential conditions for its formation and how to enter a trade with this particular setup. Do not forget that there is no such thing as a strategy that is profitable without fail. Stop looking for the holy grail of trading. There are no special secrets in the market. Choose a strategy, and practice it with capital management for at least three months in a demo account.
