The QM pattern is a smart money-based reversal setup that identifies market structure shifts early. Unlike traditional patterns, it focuses on manipulation and precise entry zones. This pattern is used by traders who aim for who focus on entries based on established conditions, though all trading involves inherent risks that should be carefully managed.
This discussion is intended for traders who understand the risks associated with leveraged products and recognise that such strategies may not be suitable for everyone. Like all trading strategies, the QM pattern is not foolproof and may produce false signals, particularly in volatile, choppy, or ranging markets.
What is QM pattern trading?
QM pattern trading, short for Quasimodo pattern trading, is a price action-based reversal strategy used to spot trend reversals at key support or resistance levels. It’s a structure where the market creates a higher high (HH) and then a lower low (LL), breaking the previous trend’s structure. The pattern hints that the trend is losing strength.
Key structure of a QM pattern
Higher High (HH)
The pattern begins with a market in an uptrend, with price forming a higher high, indicating strong bullish momentum. This is the last major push by bulls before the structure starts to shift, often giving a false impression that the uptrend will continue.
Lower Low (LL)
After the HH, the price sharply reverses and creates a lower low, breaking below the previous higher low. This is the first sign of weakness in the bullish trend and marks the break of structure (BOS). It signals that bears are starting to take control.
Lower High (LH): the key QM level
The price retraces from the lower low and forms a lower high, which aligns near or just below the previous HH. This area is known as the QM level. It becomes the key decision zone where the pattern is often analyzed for potential entry points based on key structural shifts. It shows that the market failed to reclaim the bullish structure.
Break of Structure (BOS)
The BOS is a critical confirmation in the QM pattern. When the lower low forms, it breaks the market’s previous bullish structure. This structural break confirms the shift in market direction, turning bullish conditions into a potentially bearish setup.
Order block or supply/demand zone near LH
Around the LH or QM level, traders look for a supply zone or bearish order block. This is where large institutions may have previously sold and where the price is likely to react again. This adds confluence and increases the gains of a successful reversal trade.
How does the QM pattern signal a trend reversal?
Break in the existing market structure
The first sign of a possible trend reversal comes when the price breaks the existing structure. In an uptrend, this means the price fails to continue making higher highs and instead drops below the previous higher low. This break signals that bulls are losing control and bears are stepping in.
Formation of a lower high after a higher high
After forming a higher high, the market reverses and creates a lower high during the pullback. This lower high, known as the QM level, becomes a critical area. It suggests the market failed to reclaim bullish momentum and may now turn bearish.
Confirmation through a lower low
A new lower low forms as the price drops below the last significant low. This confirms the break of structure and validates that the uptrend has reversed. It reflects clear bearish control and sets the foundation for potential short setups.
Price retesting the QM level (LH zone)
Following the lower low, the price often retraces and retests the QM level (the zone where the lower high was formed). This area becomes a key supply zone. If the price struggles to move beyond this level, it reinforces the idea that bears are dominant.
Entry upon rejection from the QM zone
Traders look for bearish confirmation signals, such as bearish engulfing candles, rejections, or high-volume wicks at the QM level. Once price shows rejection at the QM level, some traders may consider entry points, with stops placed for risk management and targets based on prior market structure.
Ideal zones to trade the QM pattern
At the origin of the break of the structure
The most aggressive and early entry zone is the area where the price first broke the market structure by forming a lower low. This point often aligns with strong exit interest and signals that the previous trend is reversing. If supported by volume or rejection candles, it can be a potentially high-probability entry zone for early entries.
Near the left shoulder’s supply or demand zone
The left shoulder of the pattern refers to the previous high or low before the formation of the higher high. If this region also marks a supply or demand zone, it adds strong confluence to the QM setup. Price reactions at this point may provide additional insights into market dynamics.
At the lower high (QM level) after a BOS
This is the most commonly used entry zone in QM trading. The lower high, formed after the break of structure, becomes the QM level. It often acts as a supply zone where price retests and gets rejected. Entries from this level allow tight stop-loss placement and clear targets based on prior structure.
Step-wise guide to trade with the QM pattern
The steps below describe how traders generally apply the QM pattern, but they are not a guarantee of achieving any particular outcome. Market conditions can vary, and the pattern may not always be effective. Traders should assess the approach in line with their own experience, objectives, and risk tolerance.
- Identify the prevailing trend: The trader begins by analyzing the current market trend to understand the broader direction.
- Spot a higher high followed by a lower low: They then look for a break in structure where a lower low follows a higher high.
- Mark the lower high (QM level): Next, they identify the lower high formed after the break. This becomes the key QM level.
- Wait for the price to retest the QM zone: The trader patiently waits for the price to retrace and approach the QM level.
- Confirm rejection with candlestick or indicator signals: They look for rejection signs using candlestick patterns or supporting indicators like RSI or MACD.
- Enter trade at or near the QM level: Traders may observe for rejection signals to help confirm market momentum at the QM zone.
- Set stop-loss above (or below) the invalidation point: A stop-loss is placed beyond the QM level to manage risk and protect capital.
- Set target based on structure or risk-reward ratio: Targets may be considered based on prior market structure or a risk-reward framework, depending on the trader's strategy.
Put the QM pattern into trading practice
The QM pattern may help identify potential trend reversals, though it is important to manage risk effectively and understand that outcomes can vary. However, it requires accurate structure recognition and can fail without proper confirmation, especially in volatile or ranging markets.
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