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We can combine the cypher pattern with divergences, indicators, oscillators, and even chart patterns for more accuracy and profitability. The cypher pattern is a more advanced harmonic structure, and one that some traders are not entirely familiar with. The pattern has a high probability of success and offers a solid risk to reward profile when traded correctly. As with most other harmonic patterns, it’s important to be fairly stringent when it comes to validating the pattern.

  • Check if swing A – B retraces no less than 38.2% and no more than 61.8% of swing X – D.
  • We have no knowledge of the level of money you are trading with or the level of risk you are taking with each trade.
  • Studies and traders who have a good understanding of this chart pattern have agreed on how reliable this harmonic pattern can be, with an accuracy of over 70%.

Even though there is one more important step to learn before defining the cypher pattern trading strategy rules. The cypher pattern is a trend reversal strategy that enables traders to capture as much profit as possible. You could also use point A as a point to lock profit and trail the trade, and the Fibonacci ratios can be used for a cypher patterns time trend reversal. The Cypher pattern is one of the lesser-known harmonic trading formations. But it is, nevertheless, a powerful trading pattern that you should learn and add to your trading toolkit. Here we will dissect the cypher harmonic pattern in detail, and provide some best practices for trading it in the financial markets.

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Hence, a lot of patience is required to detect, draw, and trade harmonics. The entry point is at point D, or around the 161.8% Fibonacci extension. Some traders prefer to enter the market just before the price extends to 161.8% to make sure they get into the market. The stop-loss is located below point X, a move that would invalidate the basic idea behind the Gartley pattern – the continuation. Meaning, we can’t have an extension of the movement if the price prints a low below the initial X point.

Now that you know what the Cypher pattern looks like on candlestick charts and how it works, the next step is to figure out how to use and trade this unique chart pattern. If the cypher completes successfully with a reversal taking place at point D, it may eventually become a trend channel where the price moves between the highs and lows. Cyphers can also appear inside price channels that are already formed. During the 30mins timeframe, a bearish divergence formed with the Relative Strength Index (RSI). This confirms a potential change in trend from a bullish trend to a bearish one.

Set a Take Profit Target

To do so, you need to locate the X point automatically stretch the lines and create a zigzag pattern. DISCLAIMER – Your money is not in danger but guaranteed to disappear if you follow my trades. These ideas and trades are mostly for my personal use as a journal, but I try to provide as much value as possible to the community

Cypher patterns supposedly have 80% completion ratio. This one failed

X – recent bottom
A – recent top
B – must touch 0.382 fib…

Traders have two options when it comes to entering a Cypher pattern. They can either set a limit order at the 78.6% level or use a market order after confirming that the price is beginning to reverse. At its simplest, the Cypher pattern comprises an impulse leg, XA, that retraces to form AB. Another impulse beyond the swing point A creates the BC leg, and a final retracement to D generates the CD leg. Sharing this idea as a reference to my primary HTF view – the chart was going to be too messy otherwise.

The Butterfly Pattern

Harmonics don’t play a huge role in my trading, but I still keep my eye out for a few select patterns that can get my into high probability reversal or continuation trades. The Cypher pattern is identified by observing three price swings that resemble the pattern. Traders use the Cypher pattern tool or Fibonacci retracement and extension tools to trace and label price swings, projecting the D (Potential Reversal Zone) point. Unfortunately, we are not able to make a meaningful backtest of the Cypher pattern strategy.

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In fact, based on our cypher trading rules, we would initiate a long position at the 78% retracement level. The Cypher pattern is a chart formation that indicates a potential price reversal. It is a five-point harmonic pattern with the XABCD labeling, just like other Gartley-discovered patterns, though it wasn’t discovered by him.

What’s the Buzz About Cypher Harmonic Patterns?

We want to make sure that our clients are familiar with the rules and regulations that apply to investment products, including the possibility of changes in underlying assets due to corporate events. Investing comes with unique risks and features to consider, such as sudden changes in prices, high volatility, and low liquidity. The EUR/JPY 1H chart above shows us how the bullish Cypher pattern is formed by the two tops (A and C) and three bottoms (X, B, and D).

The Cypher has a exceptionally high win rate, down to the fact that it rarely forms and reveals the big players want price to reverse. The Cypher pattern has four swings and five swing points, labeled X, A, B, C, and D. Here, we have an almost perfect AB retracement of 61.4%, followed by a pinpoint CD retracement to the 78.6% level. Note that the tool shows the pullback as 73.7%, but we know by applying the Fibonacci retracement tool to X and C that it actually hit the expected level.

Once you master the skill, however, you’ll find that the Cypher can be a valuable addition to your trading arsenal. The pattern is made up of five swing points (X, A, B, C, D) and four legs (XA, AB, BC, CD). It’s characterised by an “M” shape when bullish and a “W” shape if bearish. Traders typically place orders at D to catch the potential reversal. At Prime Codex LLC., we believe in keeping our clients fully informed about the risks that come with investing.

This retracement should bring prices to between the 38.2 to 61.8 percent level of the XA leg. The C point within the structure should be a minimum 127% projection of the XA leg, measured from point B. At the same time, C point should not extend beyond the 141.4% level. Check if swing A – B retraces no less than 38.2% and no more than 61.8% of swing X – D.