Learn Quasimodo’s trading strategy to find profitable trend reversal opportunities. In this trading guide, you will learn what Trading Quasimodo models is, how to spot this reversal setup, what are the similarities between Quasimodo trading and Head and Shoulder trading, and last but not least, we will take a deep dive into how to create a winning trading strategy.
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Trading is not an easy game, but with Quasimodo’s trading setup you can get some valuable information about that market sentiment, more precisely, you will know in advance when the trend is about to reverse. By being able to keep up with the market, you can increase the accuracy of your trading strategy and improve your expected return on investment (ROI).
This article talks about reversals in more depth: trend reversals in Forex and how to anticipate them.
If this sounds interesting, let’s start with the explanation of what Quasimodo is.
Table of Contents:
What Is Quasimodo?
Quasimodo is a reversal trading model that appears at the end of an uptrend. As a price formation, the Quasimodo model is represented by three peaks and two valleys, where:
- First, the central peak is the highest, while the two outer peaks are of the same height.
- And secondly, the second valley is lower than the first.
Note* Some technicians may call this inversion model the chart template “Over and Under”.
The following figure outlines the Quasimodo graphic model:
The Quasimodo model in forex trading predicts a reversal of the trend from bullish to bearish.
Based on the analogy of market sentiment we can distinguish two types of Quasimodo models:
- Quasimodo bullish, which appears at the end of a downward trend.
- Quasimodo bearish, which appears at the end of an uptrend.
Now, you may be inclined to believe that the Quasimodo model is similar to the head and shoulder trading model.
You are not mistaken because the two trading chart patterns are related but at the same time they are distinct price formations.
Below, we will expand on the differences between Quasimodo trading and Head and Shoulder trading.
Differences between Quasimodo and Head and Shoulder
There are two main differences between Quasimodo pattern trading and head and shoulder trading:
- The valleys have different price structures – aka the depth of the valleys has no symmetry with the Quasimodo model.
- In addition, the two inversion models use two different input techniques.
The main difference between the Quasimodo model and the Head and Shoulder model is that the left leg (second valley) of Quasimodo is much lower than the right leg (first valley). With the Head and Shoulder model, both valleys are more or less the same scale.
The pricing structure of Quasimodo does not differ from the HS model.
It is from here that the name Quasimodo derives, or the second “malformed” valley, which depicts a crooked model of head and shoulder.
In this regard, it will not be so easy to identify with the naked eye the Quasimodo forex chart pattern. Instead, you will have to use advanced trading indicators.
The second big difference between the two inversion models is the entry point.
Usually, the entry point for the HS model is the breakage of the neckline, but with the Quasimodo model, we put an entry order near the left shoulder.
Basically, Quasimodo is an advanced model of head and shoulder.
A key question that is asked by many traders is how do we determine when to trade the Quasimodo chart setup?
When to trade on the installation of Quasimodo Trading?
The best time to trade the Quasimodo model is after a significant rally or sell-off, regardless of the time frame used. All chart patterns are fractal in nature, which means they generally appear in various forms at different time intervals from the daily chart up to the 1-minute chart. This is great news for traders who trade over multiple time frames.
The existence of the prevailing trend gives us the opportunity to catch a completely new trend or at least we have the chance to profit from a temporary retracement.
In addition, the Quasimodo chart pattern allows for better entry points, which is in contrast to trend trading where entry signals are delayed. But, as you may know, each trading style has its pros and cons.
Now, let’s see how the quasimodo trading pattern works.
How does Quasimodo Pattern Trading work?
The Quasimodo model works according to the imbalance between the forces of supply and demand.
Or, in other words, the Quasimodo chart model tracks the change in the price structure.
The market structure is the continuous series of higher highs and lows that produce higher peaks and troughs. When we have a breakdown of the structure, that is, a break of the HH and HL in progress, the price first begins to print a lower minimum.
Quasimodo’s trading strategy provides us with an adequate framework to interpret the constant ebbs and flows of any asset (currency, cryptocurrency, stocks, commodities, etc.).
The Quasimodo bearish model is in short interested in how the market comes from a buy momentum and heads towards the sell momentum.
The Quasimodo chart pattern only starts to become visible when the price fails to make another higher low (HL).
For some novice traders, this kind of information might be enlightening because you can now have a proper framework to analyze the price structure. You have to keep in mind that this is an approach to seeing the markets and it is by no means the only one.
Now that things are starting to get clearer, we’re good at defining the trading rules of the Quasimodo model.
Trading rules of the Quasimodo model
Quasimodo’s trading rules for sell signals can be summarized as follows:
- A prevailing uptrend must be visible: series of HH followed by a series of HL.
- Break in the structure of the market: the price begins to make lower low ll.
- Place a sales order near your right shoulder.
- Hide the protective stop-loss above the last highest high HH.
- Take profit near the first valley of the Quasimodo graphic model.
As a general rule, the Quasimodo model has more weight if the second valley is much lower than the first valley. In other words, the greater the distance between the two valleys, the more crooked the Quasimodo model becomes.
The forex chart below outlines a bearish QM pattern over the 1-hour time frame:
Let’s take a look at Quasimodo’s bullish reversal model.
Quasimodo’s trading rules for buy signals can be summarized as follows:
- A prevailing downward trend must be visible: series of LL followed by a series of LH.
- Break in the structure of the market: the price begins to make the HH higher.
- Place a purchase order near your right shoulder.
- Hide the protective stop-loss strategy below the last lower low LL.
- Take profit near the first peak of the Quasimodo chart pattern.
The underlying forex chart outlines a bullish QM pattern on the USD/JPY time frame of 1 hour:
Now let me share with you a simple but effective trading trick.
If you want to test how crooked Quasimodo’s chart model is, simply draw a few lines along with the pricing structure. When you do this, Quasimodo’s pricing structure will appear on your price chart.
When highlighting the price structure (as in the USD/JPY trade example) we can clearly see quasimodo’s foolishness.
In the USD/JPY example, we can see that the price structure is not so crooked, it looks more like the Head and Shoulder model.
Therefore, in this particular trade, the market did not give us the opportunity to place a buy order.
And that’s the thing with trading Quasimodo models, which means a lot of missed opportunities.
To get around this trap that is common to all graphic models, we will add a little confluence to the Quasimodo model and distort the rules.
Below, we will outline an advanced Quasimodo trading strategy:
Quasimodo Trading Strategy
You don’t need to add complicated things to make a simple chart pattern provide more accurate trade signals. The only extra tool we need to optimize Quasimodo’s trading strategy is the Fibonacci retracement indicator.
Now, if you are a fan of the Fibonacci retracement tool, you may want to check out this new Fibonacci trend line trading strategy.
The Fibonacci retracement indicator can help us anticipate where the last price swing that is part of the Quasimodo chart pattern might end. If you backtest this model, you will see a lot of missed trading opportunities because the last oscillating wave of the Quasimodo model does not always extend near the left shoulder. If you need to learn the best backtest strategy check out our blog!
Fibonacci retracement levels can help us identify reliable price zones of support and resistance. We are particularly interested in the price zone between the Fibonacci retracement of 50% and 61.8%, with the weak point of the Fibonacci retracement level of 61.8%.
Now, let’s come back with our lost trade on the USD/JPY chart.
By applying the new rules of the Quasimodo trading strategy, we are able to capture a full-blown reversal.
See the table below:
Another key point to take into account when exchanging the Quasimodo model is the quality of the swing highs and lows.
We need to find a mechanical approach to quantify the quality of swing high and swing low point.
As a general rule, we consider a high qualified swing (low swing) only those points that have a V-shaped pattern. These price formations are also known as V tops and V bottoms.
A V-shaped oscillating low can be easily recognized by the price that abruptly changes from bearish to bullish to bearish respectively.
If we look at the price structure of the same USD/JPY chart and the Quasimodo chart pattern, we can see that every single swinging high and low part of the Quasimodo model is V-shaped.
The main point to take is that when Quasimodo’s pricing structure is V-shaped, you can bet your home on it.
Final Words – Quasimodo Pattern Trading
In summary, quasimodo pattern trading is a new technique used to capture trend reversals. Don’t be afraid to try it just because it’s a new graphic scheme. When all the elements of this reversal model come together, you have a receipt for success. With our Quasimodo trading strategy, you now have a proper framework to tame the highly volatile forex market.
So, here’s a quick summary of what you’ve learned today:
- The Quasimodo graphic model is a reversal model.
- Quasimodo trading is not similar to head and shoulder trading.
- Quantify quasimodo’s foolishness by drawing a visual line on the price chart.
- The V-shaped pricing structure of the Quasimodo model produces more profitable signals.
- The Fibonacci retracement zone 50% – 61.8% is a better entry technique.
