In Price Action Patterns

Another pattern we heavily monitor, serving as an intraday price turning point. These can be very reliable if used properly and can be seen on everything from daily down to 1 min charts.

The easiest way to describe this pattern is a 0-1-0 pattern, where in the case of a buy, price makes a new low; that low is taken out, price comes back up past the initial pullback from the first low, comes back down and uses the base of the first low as support. Its essentially a mutated version of the very common head and shoulders pattern, without the diagonal trendline ambiguity.

Think of it as the top of a 2 dimensional pyramid made of squares, where the blocks on the second level from the top have equal highs.

In the case of a buy:
1. Price makes a new low
2. Price retraces from this low
3. Low is taken out to the downside (price extends beyond it)
4. Price comes back above the initial retracement from the first low
5. Price comes back down and fades the original swing point

The reason we require, in the case of a buy, a higher high on the second retracement, is to disqualify the current downtrend, and initiate a price reversal. Without the higher high, market participants could easily view the current price action as nothing more than a bump in a downtrend, as opposed to a reversal. Reverse this logic for sells.

Like anything else I list here, these are nothing more than patterns that repeat themselves all the time, and some of you might be aware of this one already. They key is to identify, and most importantly, react to them, when the opportunity arises.

Quasimodo Over and Under Pattern Forex
 
Over and Under Pattern 1 Forex
 
Over and Under Pattern 2 Forex
 

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Showing 9 comments
  • Tim
    Reply

    Good Strategy. I have seen these chart patterns a lot but have been unsure how to handle them.
    Thanks.

  • Anonymous
    Reply

    works fine,
    it's just a pity that sometimens after excellent setup is created the price never reaches swing point
    but still a great tool

    paul

  • RedCabbage
    Reply

    Great nugget of gold that one Steve I love it. This mutated H&S set up is frequently referred to as Quasimodo in the chat room.

    RedCabbage

  • Anonymous
    Reply

    Have you backtested this pattern?

  • luqmanz
    Reply

    wow cool I have been using this .. its great to see a proper documentation like this … cool …

  • baz
    Reply

    Also known as rounding bottom pattern.

    • Steve W.
      Reply

      Yeah I have gotten this before – only major difference here is the higher high / lower low qualifier with support or resistance opposed to a clean round bottom….pls see the description above.

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