Cypher Pattern Trading Strategy will teach you how to trade correctly and draw cypher pattern. You can use the cypher harmonic pattern on your own and have a profitable Forex trading strategy.
It’s no mystery that geometric patterns are in Forex price charts. And the cypher model is a very good representation of that. Cypher’s forex pattern is part of the Harmonic trading pattern and is the most interesting harmonic pattern. This is because it has the highest win rate.
Our team at Trading Strategy Guide is developing a step-by-step guide to Harmonized trading patterns. We recommend that you read the introduction to harmonic patterns. Read the article here, Harmonized Patterns Trading Strategy – Easy Step by Step Guide .
It is important to read the introductory article on harmonic patterns. It will give you a better understanding of this. We are also trained in How to Trade with Gartley Patterns .
The Cypher forex pattern works in any market and on any timeframe. Our team at Trading Strategy Guide recommends avoiding the lower timeframes. Stick only to the higher timeframes, preferably 4h, and the daily chart. We want to make sure our readers are satisfied.
So, if you mainly trade in lower timeframes, don’t miss your chance to read Best Random Trading Strategy- Easy 6 Step Strategy . Recently, this article has received a lot of attention from our readers.
In an effort to help you trade Harmonized patterns, we will provide you with the tools and information you need to succeed. In this regard, we will have a variety of other Harmonic patterns exchange strategies, such as:
- ABC Bullish / Bearish
- AB = CD Bullish / Bearish
- 3-Drive Bullish / Bearish
- Gartley Bullish / Bearish
- Bullish Butterfly / Bearish
- Bat Bullish / Bearish
- Bullish Crab / Bearish
- Bullish Shark / Bearish
Before we get started, let’s take a look at the indicators needed to successfully trade the Cypher Pattern Trading Strategy.
To better identify forex cypher patterns and to be able to draw cypher patterns you will have to use the Harmonized Patterns Indicator (see Figure below). You can spot the Harmony Pattern Indicator on most popular Forex trading platforms (TradingView and MT4) in the indicators section.
Don’t forget you need to draw the Cypher forex template yourself. Make sure you check to see if it matches the Fibonacci rules. In the next few paragraphs, we will discuss this in more detail. Also, read my personal trading plan reviewed by Kim Krompass.
Now let’s go ahead and define the Cypher pattern forex.
What is Forex Pattern Cypher?
In the harmonic pattern world, the Cypher pattern forex is a four-legged reversal pattern. The pattern follows a specific Fibonacci ratio. Cypher’s forex pattern appears less often than other harmonic patterns. This is because market prices are unlikely to meet such rigid Fibonacci ratios. Cypher’s forex pattern needs to meet the following Fibonacci rules:
- AB = 0.382 to 0.618 retracement of swing leg XA;
- BC = extend to minimum 1.272 and maximum 1,414 of the XA swivel pin;
- CD = get 0.786 of the XC pivot pin;
Define strategy
The first rule of the Cypher Forex pattern is that the retracement from X to A must fall. It will touch the 0.382 Fibonacci, but cannot close below the 0.618 Fibonacci. Between 0.382 and 0.618 retracement of the XA leg, we have the third point of the Cypher pattern labeled as B. B.
The next rule of the Cypher pattern forex is a Fibonacci extension of the XA leg. It comes in at 1.27, but doesn’t go beyond the 1.414 Fibonacci. This move is labeled “C” and completes the BC swing leg of the Cypher pattern forex. The last leg of the Cypher pattern, where our orders will be executed, is at the end point D. Point D is at the 0.786 Fibonacci retracement levels of the entire move starting from X up to C. .
Cypher . pattern trading strategy
Now you will learn how to trade the Cypher Pattern with a very simple set of rules. They will try to minimize risk and maximize profits. Although, there is one more important step to learn before defining the Cypher pattern trading strategy rule. First, we will give you instructions on how to apply the Harmonized pattern indicator.
Step #1 How to draw cypher patterns
I will guide you through this process step by step. You need to follow this simple guide and see the picture below to better understand the process.
- First, click on the conditioning pattern indicator. The indicator is located on the toolbar on the right side of the
- TradingView platform. In the MT4 terminal you can locate the harmonic pattern indicator in the Indicators library.
- Identify the starting point X on the chart, which can be any high or low point on the chart.
Once you have identified your first high/low, you simply need to follow the movements of the market swing wave. - You need to have 4 points or 4 swing high/low that link together and form Forex harmonic patterns. Each swing leg must be confirmed and followed by the Fibonacci ratio forex cypher pattern shown above.
Now, we will look at the Cypher pattern trading strategy rules.
See below…
Step #2 Buy entry: Buy when the CD swing leg reaches 0.786 retracement of the XC swing leg.
From a risk management point of view, the Cypher pattern is possibly the most interesting harmonic pattern. This is because it has the highest win rate. Our backtesting results have consistently proven the forex cypher pattern to be a very reliable harmonic pattern.
Next, buy with a market order at the open candle before completing point D at 0.786 Fibonacci retracement of the XC leg. When the market hits 0.786, we assume wave D is in place, because we can’t control how far the market will go. We are only interested in meeting the Fibonacci ratios.
We can note that the price has only a small deviation below the 0.786 Fibonacci – our entry point.
The next important thing we need to set up is where to place our protective stop.
See below…
Step #3 – Stop Loss: Place a protective stop loss below wave X.
For Forex Bulp Cypher, you usually want to place your protective stop loss below the X point. That’s the logical place to hide your stop loss. This is because any break below will automatically invalidate the trade.
We need to establish the most reasonable position for our profit level in the Cypher pattern trading strategy.
See below…
Step #4 Bullish Cypher Pattern Forex – Make Profit: Take Profit when we reach point A
The Cypher pattern trading strategy is a reversal strategy. We want to make sure that we capture as much of the new trend as possible. If you are not a fan of reversal strategy and you like trend following strategy, we encourage you to follow MACD Trend Following Strategy – Simple to Learn Trading Strategy . This strategy has attracted a lot of interest from the Forex trading community.
The Cypher pattern has a conservative take profit target. We want to take a profit when we reach point A of the model.
Why, are we profitable so early?
For the majority of conditioning models, it is best to lock in profits as soon as possible. Since the Cypher pattern is one of the most profitable harmonic patterns, we can give it more room for the price action to breathe. We have at least a chance of seeing a retest of wave A.
Note ** The above is an example of a BUY trade using the Bullish Cypher pattern trading strategy. Use the same rules for a SELL trade. In the image below you can see an example of an actual SALE transaction.
Watch:
Conclusion
The rules of the Cypher pattern trading strategy are quite simple. However, even though it has a bigger win rate than other harmonic patterns, the Harmonic Cypher structure can be detected very rarely on the chart. We need to make the most of instances that appear.