Cypher Pattern Trading Strategy will teach you how to correctly chart and draw cypher patterns. You can use your own cypher harmonic pattern and have a profitable Forex trading strategy.
It is no mystery that geometric patterns are in Forex price charts. And the cypher pattern is an excellent representation of that. Forex forex patterns are part of Harmonic trading patterns and are the most interesting harmonic patterns. This is because it has the highest winning rate.
Our team at Trading Strategy Trader is building a step-by-step guide on Harmonic trading patterns. We recommend reading the harmonic pattern introduction. Read the article here, Harmonic Pattern Trading Strategy-Simple 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 also have a tutorial on How to Trade Gartley Patterns.
Forex forex patterns work in every market and in every timeframe. Our team at Trading Strategy Traders recommends avoiding lower time frames. Just stick to higher time frames, preferably 4h chart and daily chart. We want to make sure our readers are satisfied.
Therefore, if you mainly trade in the lower time frames, do not miss the opportunity to read the Simple 6-Step Stochastic Trading Strategy Strategy. Lately, this article has received a lot of attention from our readers.
In an effort to help you trade Harmonic patterns, we will provide the tools and information needed to succeed. In this case, we will have a series of strategies that can trade other Harmikon patterns such as:
- ABC Bullish / Bearish
- AB = CD Bullish / Bearish
- 3-Drives Bullish / Bearish
- Gartley Bullish / Bearish
- Butterfly Bullish / Bearish
- Bat Bullish / Bearish
- Crab Bullish / Bearish
- Shark Bullish / Bearish
Before we begin, let’s review the indicators needed to successfully manage the Cypher Pattern Trading Strategy.
To better recognize forex cypher patterns and be able to draw cypher patterns, you need to use the Harmonic Pattern Indicator (see Figure below). You can find the Harmonic Pattern Indicator on the most popular Forex trading platforms (TradingView and MT4) in the indicator section.
Don’t forget you need to draw your own Cypher forex pattern. Be sure to check if it matches the Fibonacci rule. In the next few paragraphs, we will discuss it in more detail. Also, read my personal trading plan reviewed by Kim Krompass.
Now, let’s move forward and define the Cypher forex pattern.
What is a Forex Cypher pattern?
In the world of harmonic patterns, the Cypher forex pattern is a four-legged reversal pattern. Patterns follow certain Fibonacci ratios. Forex forex patterns appear less frequently than other harmonic patterns. This is because it is difficult for the market price to satisfy the rigid Fibonacci ratio. Forex forex patterns need to meet the following Fibonacci rules:
- AB = 0.382 to 0.618 swing leg displacement XA;
- BC = extended to a minimum of 1.272 and a maximum of 1.414 feet swing XA;
- CD = track back to 0.786 feet XC swing;
Setting Strategy
The first rule of the Forex Cypher pattern is the pullback from X to A has gone down. It should have touched the 0.382 Fibonacci ratio, but could not close below the 0.618 Fibonacci ratio. Between 0.382 and 0.618 of the XA swing-leg Fibonacci retracement, we have the third point of the Cypher forex pattern labeled “B.”
The next rule for forex pattern forex is the Fibonacci extension of the XA leg. It comes in 1.27, but does not exceed 1.414 Fibonacci ratio. This moving point is labeled “C” and completes the BC swing leg of the Cypher forex pattern. The last leg of the Cypher pattern, where our order will be executed, is at the ending point D. Point D is located at 0.786 Fibonacci retracement of the whole step starting from X to C.
Cypher Pattern Trading Strategy
Now, you will learn how to sell Cypher Patterns with a very simple set of rules. They will try to minimize risk and maximize profit. However, there is one more important step to learn before deciding on a Cypher pattern trading strategy method. First, we will give you instructions on how to apply the Harmonic pattern indicator.
Step # 1 How to draw a cypher pattern
I will walk you through this process step by step. You need to follow this simple guide and see the picture below to understand the process better.
- First, click on the harmonic pattern indicator. This indicator is located on the right side toolbar of the TradingView platform. In the MT4 terminal, you can find the harmonic pattern indicator in the Indicators library.
- Identify the starting point X on the chart, which can be any swing angle or low on the chart.
- Once you are at your first swing high/low, you need to follow the movement of the market swing wave.
- You need to have 4 points or 4 high points / low points that bind and form a Forex harmonic pattern. Each swing leg needs to be verified and adhere to the forex Fibonacci forex pattern shown above.
Now, we will review the rules of the Cypher pattern trading strategy.
Step #2 Buy Entry: Buy once the CD swing leg reaches 0.786 retracement of the XC swing leg.
From a risk management point of view, the Cypher pattern is perhaps the most interesting harmonic pattern. This is because it has the highest winning rate. Our backtesting results continue to prove the forex cypher pattern is a very reliable harmonic pattern.
Next, buy with a market order on the opening candle before the completion of point D at 0.786 Fibonacci retracement on leg XC. Once the market touches the 0.786 level, we assume wave D is in place, as we cannot control how far the market will go. We are only concerned with fulfilling the Fibonacci ratio.
We can observe that the price has only a small deviation below the 0.786 Fibonacci ratio – our entry point.
The next important thing we need to determine is to place our protective stop.
See below…
Step #3 – Stop Loss: Place a Protective Stop Below the X wave.
For Cypher Bullish Forex patterns, you usually want to place your protective stop loss below point X. That is the logical place to hide your stop loss. This is because any breakout below will automatically cancel the trade.
We need to establish the most logical place to take our profits in the Cypher pattern trading strategy.
See below…
Step # 4 Bullish Cypher Pattern Forex – Take Profit: Take profit as soon as we reach point A
The Cypher pattern trading strategy is a reversal strategy. We want to make sure we capture as much of this new trend as possible. If you are not a fan of reversal strategies, and you prefer trend following strategies, we encourage you to follow MACD Trend Following Strategy – Easy to learn Trading Strategy. This strategy has attracted a lot of interest from the Forex trading community.
Cypher patterns have conservative profit targets. We want to take profit as soon as we hit point A of the pattern.
Why, do we take advantage so early?
For the majority of harmonic patterns, it is best to lock in profits as soon as possible. Since the Cypher pattern is one of the most profitable harmonic patterns, we are able to give more room for price action to breathe. We have a chance to at least see a test of wave A.
Note ** Above is an example of a BUY trade using the Bullish Cypher pattern trading strategy. Use the same rules for SELL trades. In the picture below, you can see an example of a real SELL trade.
Take a look:
The conclusion
The rules of the Cypher pattern trading strategy are quite simple. However, although it has a greater winning ratio than other harmonic patterns, the Harmonic Cypher structure can be seen very rarely on charts. We need to take full advantage of the situation that arises.
We hope the Cypher trading strategy strategy is clear and concise. If you still have questions, please leave them in the comments section below. Also, please give this strategy 5 stars if you enjoy!
Like this Strategy? Get a Free Strategy Report that includes other useful information, such as more details, chart images, and many more examples of this strategy in action!