What type of QM Pattern are traders talking about?

In trading, there are many patterns to choose from, but QM Pattern has become a relatively discussed format recently. Its full name is Quasimodo Pattern, a technical analysis tool that helps identify trend reversal points. For those unfamiliar, the name “Quasimodo” comes from the hunchback character in classic literature. This name fits well because the actual chart pattern appears asymmetrical, much like the character.

What is QM Pattern?

The Quasimodo Pattern is a trend reversal pattern that resembles the Head and Shoulders but is not exactly the same. The key difference is that the right shoulder of the QM Pattern can be significantly higher or lower than the left shoulder, making it look like an M or W letter depending on whether it’s a bullish or bearish reversal.

A distinctive feature of the QM Pattern is a sharp break below the neckline after the Head forms. Then, the price retraces back and reverses again before confirming a true trend change.

Two Types of QM Pattern

Bullish QM Pattern - Uptrend Reversal Signal

Occurs when a downtrend is about to end. The price makes a new lower low (Lower Low) confirming the downtrend. Then, a strong rebound occurs, making a new higher high (Higher High) surpassing the previous resistance. The price then pulls back but does not go below the left shoulder. This area is called the Demand Zone, a good buy point. When the price reverses upward from this point without breaking below, the trend clearly shifts to an uptrend.

Bearish QM Pattern - Downtrend Reversal Signal

Occurs when an uptrend is about to end. The price makes a new higher high (Higher High) confirming the uptrend. Then, a strong correction occurs, making a new lower low (Lower Low) breaking the previous support. The price then reverses upward again but does not go above the left shoulder. This area is called the Supply Zone, suitable for selling. When the price reverses downward from this point, the trend shifts to a downtrend.

Theoretical Foundation: Dow Theory and QM Pattern

Why is the QM Pattern widely accepted? Because it is based on Dow Theory, which states that “The trend continues until a change signal appears.”

In an uptrend, prices should always make Higher Highs. In a downtrend, prices should always make Lower Lows. The QM Pattern attempts to beat the previous pattern by forming after a confirmed trend, then reversing into the opposite pattern.

For example, in a bullish QM Pattern, after a Lower Low (confirmation of a downtrend), the price makes a Higher High (breaks the downtrend), then reverses with a Higher Low (beginning an uptrend), consistent with Dow Theory.

How to Trade QM Pattern Using Demand and Supply Zones

Applying the QM Pattern in trading can be combined with Demand and Supply Zones.

For Bullish QM Pattern, wait for the right shoulder to test the Demand Zone (not lower than the left shoulder). When the price bounces from this point, it’s a buy signal. Place a Stop Loss below the Head or previous Support, and close the position when a trend reversal signal appears.

For Bearish QM Pattern, wait for the right shoulder to rally and test the Supply Zone (not higher than the left shoulder). When the price drops from this point, it’s a sell signal. Place a Stop Loss above the Head or previous Resistance, and close the position when a reversal signal appears.

Limitations to Watch Out for When Using QM Pattern

QM Pattern should not be used on assets with low trading volume (Low Liquidity) because in such cases, the price may be manipulated by a few individuals. False patterns resembling QM may appear but will not produce the expected results. Always check the volume and liquidity of the asset before applying the QM Pattern.

Why is QM Pattern Worth Studying?

The QM Pattern is a tool for trend-following traders (Trend Following). Its accuracy stems from its foundation in Dow Theory and the balance of Demand and Supply, not just a pattern on a blank chart.

To effectively use the QM Pattern, you need to understand how it indicates a shift from buying pressure to selling pressure (or vice versa). Also, wait for the pattern to complete before entering a trade. Do not rush to enter during the formation of the Head of the QM Pattern.