You can find a lot of information on how to trade this lucrative pattern. Some of the information is incorrect. I will show you how to properly trade the Cypher Pattern. I will also show you some tricks (or trade hacks) I have used to help me trade the best patterns.
Although harmonic trading is possible in all markets, these examples will be more applicable to the Forex market.
What is a Cypher Pattern?
This stage will be called identifying Cypher Pattern Stage. It is an advanced harmonic price action that you can find on all markets.
It can have a remarkable strike rate and a very good average risk/reward ratio. Cypher patterns may be bullish or bearish.
In case you are unfamiliar with pattern trading, let's begin with the rules to identify this pattern.
Rules and targets for Cypher Pattern
A cypher is a pattern that consists of five points. These are usually X, A and B labels. Legs are the lines that connect each point. These legs are referred as XA, AB BC, BC, and CD, respectively. The pattern begins with the XA leg.
Here are the rules to identify a cypher-pattern:
- The B point is located at the end or the XA leg's retracement. The B point must be between a 0.382 - 0.618 retracement for the XA leg.
- The C point is located at the end BC leg. It should be a projection of the XA leg.
Point D should correspond to a precise 0.786 trace of the line connecting X and C (XC). The end of the pattern is marked by the D point.
Steps in Cypher Pattern trading strategy
- Step 1 - Identify Cypher pattern on your chart
- Step 2 - Identify entry position based upon bullish or bearish signals
- Step 3 Identify the stop-loss (below wave X if bullish, higher wave X if bearish signals).
- Step 4 - Determine take profit levels based on the following guidelines
Use an AtoZ-approved broker to try the cypher trading strategy:
The 0.382 retracement point of the CD-line is your first take-profit. The 0.618 retracement point of the CD-line is your second take-profit. You could close half the position at first take-profit, and the remaining position at second take-profit for risk management. Point D is the 0.786 retracement line of the XC line.
For intraday traders, you should set your stop-loss lower than the X point. It should be 10 or more pip below. After your position turns into profit, it is a good idea adjust your stop-loss. For example, you could move your stop loss to the entry level when you hit the first take-profit. This will stop a market reverse across the D point from wiping away your gains.
There is one caveat to these rules: neither the B points nor the wicks of candles that produce the B point should ever exceed the 0.786 level of XC. This is a sign that the price retracement level of XC is too deep, and it is not a good pattern.
You may find a pattern that has a low risk-to-reward ratio. This ratio can be improved by waiting for CD to retrace below 0.786 on the XC line, and then entering the trade.
Rules for Bullish and Bearish Cypher Patterns
The bullish Cypher Pattern resembles the letter m. A bearish Cypher Pattern is an upside down bullish Cypher Pattern and looks just like a W. All levels of entry, stop loss and take-profit are the same.
Depending on whether the pattern's bullish or bearish, your orientation will vary. You can trade the same way.
Success rate of the Cypher Pattern strategy
The cypher strategy is just like any other trading strategy. It will not give you 100% success. This harmonic wave can be used to your advantage depending on which instrument you trade. I have seen success rates as high as 80% with this strategy. This strategy will only work for 40-55% of the most successful traders.
This tool is very promising if we take into account the Risk-Reward ratio, and the 40% success rate.
A part of the graphical analysis is the trading strategy that uses the Cypher pattern. It uses Fibonacci levels for retracement levels. The pattern should follow the previous trend. Point D, which is a reversal, highlights the end of counter-trend retracement.
Do you like the Cypher trading strategy? Try it out with an AtoZ-approved broker.
Ratios between legs of the formation have to be in certain ranges, meeting the conditions of the pattern. You can use this trading method as a standalone algorithm or in conjunction with additional technical indicators measuring the momentum and showing the trend’s direction. We hope the Cypher patterns trading strategy rules have been clear and succinct.
Do you need to trade using a cypher strategy?
This article will help you understand the Cypher Pattern Trading Strategy before you begin trading.
Dr Yury Safronau is a PhD in Economics and our in-house trade expert. He will give you his top forex, stocks and metals to buy or sell daily.
Since 2015, his trading strategies that are based on nonlinear dynamic models have earned more than 65000 pip profits. There are strong buy/sell signals in several markets that you shouldn't miss.
You want to know which ones?
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