The Quasimodo Pattern or Over and Under pattern is a relatively new entrant to the field of technical analysis in the financial markets.
Quasimodo Pattern Explained
Although new, the Quasimodo pattern is a commonly occurring theme that is more frequent when price carves a top or a bottom or when price begins a major correction to the trend. The Quasimodo Pattern, although complex as it might seem is actually very simple.
This trading pattern is especially powerful because when it occurs, in most cases, traders will notice a confluence with other methods of analysis. For example, when a trader spots a Quasimodo pattern near a support or resistance level , it increases the confidence of the trader or the trading probability. Likewise, when trading divergences, when you spot a Quasimodo pattern, that confluence can be used to trade the divergence set up with more confidence. Quasimodo Short Signal Pattern.
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The fifth level in the set up is the trigger, where a short position is taken. Stops are set above the higher high and the take profit level is up to the trader. The fifth leg in this pattern is the trigger for long positions with stops set to at or below the lower low.
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Quasimodo Long Signal Pattern Examples:. Here is another example of the Quasimodo Long example:.
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The Quasimodo pattern has a higher probability of success when other reversal signals have a confluence to the return to the first resistance level price or left shoulder aligns with an overbought reading or there is a bearish divergence between technical oscillators and a higher high in price action. For example, if the return to resistance aligns with a 70 RSI or price is higher but the RSI is lower that can be a confirmation of this pattern.
Swing traders can identify supply and demand zones using this pattern for buying dips near previous support areas and selling into previous resistance zones. The Quasimodo pattern is rare but can be a powerful way to identify important areas where buyers and sellers are located when it appears on a chart. A stop loss and trailing stop are good tools for managing the risk of being wrong.
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This pattern just creates probabilities, not certainties and trade management is what creates profitability over the long term. Posted By: Steve Burns on: July 26, Enter your email address and we'll send you a free PDF of this post. Share this:. Share 0.