Cypher Pattern Trading Strategy – How To Correctly Draw Cypher Pattern (2024)

The Cypher Pattern Trading Strategy will teach you how to correctly trade and draw the cypher pattern. You can use the cypher harmonic pattern on its own and have a profitable Forex trading strategy.

It’s not a mystery that geometric patterns are in the Forex price chart. And the cypher pattern is a very good representation of that. The Cypher pattern forex is part of the Harmonic trading patterns and is the most exciting harmonic pattern. This is because it has the highest winning rate.

Our team at Trading Strategy Guides is building a step-by-step guide on Harmonic trading patterns. We recommend reading the introduction to harmonic patterns. Read the article here, Harmonic Pattern Trading Strategy- Easy Step By Step Guide.

It’s vital to read the introductory article on harmonic patterns. It will give you a better understanding of this. We also have training on How to Trade with the Gartley Pattern.

The Cypher pattern forex works in every market and in any time frame. Our team at Trading Strategy Guides recommends avoiding the lower time frames. Only stick to the higher time frames, preferably the 4h, and the daily chart. We want to make sure our readers are satisfied.

Check out our article on a step-by-step guide on a chart pattern strategy!

So, if you mainly trade in the lower time frame, don’t miss the chance to read the Best Stochastic Trading Strategy- Easy 6-Step Strategy. Lately, this article has received a lot of attention from our readers.

To help you trade the Harmonic patterns, we will provide you with the necessary tools and information for success. In this regard, we’re going to have a series of strategies that trade other Harmonic 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 get started, let’s review the indicators needed to successfully trade the Cypher Pattern Trading Strategy.

To better identify the cypher pattern forex and to be able to draw cypher patterns, you’ll have to use the Harmonic Pattern Indicator (see Figure below). You can detect 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 the Cypher pattern forex by yourself. Make sure you check to see if it matches the Fibonacci rules. In the next few paragraphs, we’re going to discuss this in more detail. Also, read my personal trading plan reviewed by Kim Krompass.

Now, let’s move forward and define the Cypher pattern forex.

What is the Cypher Pattern Forex?

In the harmonic pattern world, the Cypher pattern forex is a four-leg reversal pattern. The pattern follows specific Fibonacci ratios. The Cypher pattern forex appears less frequent than other harmonic patterns. This is because it’s hard for the market price to satisfy such rigid Fibonacci ratios. The Cypher pattern forex needs to satisfy the following Fibonacci rules:

• AB= 0.382 to 0.618 retracement of the XA swing leg;
• BC= extend to minimum 1.272 and maximum 1.414 of the XA swing leg;
• CD= retrace to 0.786 of the XC swing leg;

Defining the Strategy

The first rule of the Cypher pattern Forex is the retracement from X up to A has to come down. It should touch the 0.382 Fibonacci ratio, but can’t close below the 0.618 Fibonacci ratio. Between the 0.382 and 0.618 Fibonacci retracements of XA swing-leg, we have our third point of the Cypher pattern forex labeled “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 exceed the 1.414 Fibonacci ratio. This point of the move is labeled “C” and completes the BC swing-leg of the Cypher pattern forex. The final leg of the Cypher pattern, where our orders will be executed, is at the finishing point D. point D is located at the 0.786 Fibonacci retracements of the entire move starting from X up to C.

Cypher Pattern Trading Strategy

Now, you’ll 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 rules. First, we will give you indications on how to apply the Harmonic pattern indicator.

Step #1 How to draw cypher patterns

I will walk you through this process step by step. You need to follow this simple guide and see the figure below for a better understanding of the process.

• First, click on the harmonic pattern indicator. The indicator is located on the right-hand side toolbar 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 swing high or low point on the chart.
• Once you’ve located your first swing high/low point, you simply have to follow the market swing wave movements.
• You need to have 4 points or 4 swings of high/low points that bind together and form the Forex harmonic patterns. Every swing leg must be validated and abide by the cypher pattern forex Fibonacci ratios shown above.

Now, we’re going to review the Cypher pattern trading strategy rules.

See below…

Step #2 Buy Entry: Buy once the CD-swing leg reaches 0.786 retracements of the XC swing leg.

From a risk management point of view, the Cypher pattern may be the most exciting harmonic pattern. This is because it has the highest winning rate. Our backtesting results have continuously proven the cypher pattern forex is a very reliable harmonic pattern.

Next, buy with a market order at the opening candle preceding the completion of the D point at 0.786 Fibonacci retracement of the XC leg. Once the market touches the 0.786 level, we assume wave D is in place, because we can’t control how far the market it will go. We’re only concerned with satisfying the Fibonacci ratios.

We can note the price only had a small deviation below the 0.786 Fibonacci ratio – our entry point.

The next important thing we need to establish is where to place our protective stop loss.

See below…

Step #3 – Stop Loss: Place the Protective Stop Loss below wave X.

For the Bullish Cypher pattern Forex, you normally want to place your protective stop loss below point X. 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 logical place for our take profit level in the Cypher patterns trading strategy.

See below…

Step #4 Bullish Cypher Pattern Forex – Take Profit: Take profit once we reach point A

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. The 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 profits once we reach point A of the pattern.

Why, do we take profit so early?

For the majority of the harmonic patterns, it’s 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 the chance to at least see a retest of wave A.

Note** The above was an example of a BUY trade using the Bullish Cypher patterns trading strategy. Use the same rules for a SELL trade. In the figure below you can see an actual SELL trade example.

Take a look:

Conclusion

The rules of the Cypher pattern trading strategy are pretty much straightforward. However, even though it has a bigger winning ratio than the other harmonic patterns, the Harmonic Cypher structure can be spotted very rarely on the chart. We need to take full advantage of the instances that show up.

We hope the Cypher patterns trading strategy rules have been clear and succinct. If you still have questions, please leave them in the comment section below.

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