Notice the sharp move higher starting from the low at point X and ending at point A, which completes the initial XA leg of this pattern. This occurs during the AB leg and point B terminates at the 44% retracement level. As such, the AB retracement is within the preferred Fibonacci range for the cypher pattern.

• On spotting swing highs and lows, you could apply the use of the cypher pattern discussed so far in this article.
• The use of ATR can be used to set stop loss to avoid stop hunting.
• CIPHER MINING (CIFR) $CIPR

  – Inverse Head and Shoulders breakout & retest?

In this example, we can see a bearish Cypher forming as part of a larger downtrend. For example, if AB retraces XA by 63% and the rest of the pattern looks correct, you can still consider trading. Generally speaking, CD often moves slightly beyond the 78.6% area before reversing but can sometimes stop just short of the actual point, so don’t be discouraged if the ratios aren’t perfect.

The trading method is largely attributed to Scott Carney, although others have contributed or found patterns and levels that enhance performance. The final leg within the cypher pattern will terminate near the 78.6% retracement of the prior move measured from point X to point C. The shark pattern on the other hand will terminate between the 88 and 113% of the price move as measured from point 0 to point B.

How to identify the Cypher pattern?

When the market reaches my first target, and that is B point I will move my stop loss to be even so I do not lose any money if the market reverses back up. The Cypher pattern has formed with all points by the Cypher pattern rules I have listed above. You should enter around D point when the market makes the reversal.

• The initial leg of the cypher pattern is XA, and the second leg of the harmonic pattern is leg AB; this retraces a portion of the XA leg.
• You can check this video by our trading analysts on identifying and trading the cypher harmonic pattern.
• The Cypher pattern is one of the most profitable harmonic trading patterns.
• Do not forget to join facebook community where you can see trading ideas, strategies and share…

The Cypher is well known in harmonic circles for being one of highest probability patterns, mainly due to its rarity but also because of the market psychology it reveals. Today, I’m going to teach another one of my favourite harmonic pattern setups. Ok, this may be a bit much, but I’m bored and there are too many kids upstairs……

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. So, now we know how to identify and draw the Cypher pattern, but how do you trade it? Follow these steps to get an idea of how you can apply the Cypher pattern to forex and other markets.

Cypher Pattern

To draw the Cypher pattern you should pay attention to draw D point between X and A point. Point A and C will have higher highs in bullish Cypher and lower lows in bearish Cypher. It is a reversal pattern and can lead to a trend reversal cypher patterns if it occurs against a trend. However, the pattern often occurs as a deeper pullback within a trend after an impulse wave fails early. The Cypher pattern is in a way similar to the Gartley harmonic pattern, but with an extended BC swing.

How To Trade Crypto Using The Cypher Harmonic Candlestick Pattern (With Screenshots From Margex Platform)

If you open the settings menu, you can also select which patterns you want the indicator to highlight. Since X should always be the most extreme point out of X, B, and D, stop losses can be placed just above (bearish Cypher) or below X (bullish Cypher). Beyond X, the setup becomes invalid, so this is a suitable area to set a stop. When it comes to harmonics, trading forex is very similar to the animal world.

How do you trade Cypher patterns?

Although the pattern has four swings, you may begin to suspect a Cypher harmonic formation when the third swing has completed at point C, and the fourth swing is emerging. C – D breaches 78.5% level, so we know a reversal could be nigh. Usually, this won’t happen… point B rarely reaches the 78.6% ratio. You’ll most likely see it when a deep retracement and extension takes place on the XA leg. Swing B – C must extend beyond the high created by swing A – B, at least to the 1.27.2% level, but no further than the 1.41.4% level.

Although, there is one more important step to learn before defining the Cypher pattern trading strategy rules. First, we will give you indications on how to apply the Harmonic pattern indicator. 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 time trend reversal. In an uptrend formation, the legs of the cypher chart pattern make higher highs and higher lows when drawn. For a downtrend formation, the cypher chart pattern makes lower lows and lower highs during this formation, making the shape of the cypher harmonic pattern looks like a zigzag pattern.

The Cypher patterns trading strategy is a reversal strategy. We want to make sure we capture as much as possible from the new trend. If you’re not a fan of reversal strategy, and you prefer a trend-following strategy, we encourage you to follow the MACD Trend Following Strategy- Simple to Learn Trading Strategy. Trading the cypher pattern can be confusing times and require skills to become profitable trading this pattern. Trading the cypher pattern alone, despite its accuracy, would not be ideal as this can be exposed during extreme volatility in price action.

The Cypher is also more advanced than other patterns, like the Gartley, Bat, or Butterfly, so you may need to spend some extra time learning how to recognise and trade it effectively. Once you master the skill, however, you’ll find that the Cypher can be a valuable addition to your trading arsenal. We research technical analysis patterns so you know exactly what works well for your favorite markets. HowToTrade.com takes no responsibility for loss incurred as a result of the content provided inside our Trading Academy. By signing up as a member you acknowledge that we are not providing financial advice and that you are making the decision on the trades you place in the markets.

As such, there are a total of four individual legs that make up the pattern. The first leg is the XA leg, the second leg is the AB leg, the third leg is the BC leg, and the final leg is the CD leg. Can you see how the A point and the C point within the bullish cypher structure are making higher highs, and similarly, how the B point is making a higher low? In addition to that, if you take a moment to study the XABC points within the structure, you will be able to recognize that it resembles a zigzag or lightning bolt type of look. The cypher pattern consists of four separate price legs, with certain clearly defined Fibonacci relationships.