The Cypher harmonic pattern is a four-leg reversal pattern that uses Fibonacci ratios to identify potential trend reversals. It is considered to be one of the more complex harmonic patterns, but it can also be one of the most profitable.
The Cypher pattern consists of five swing points: X, A, B, C, and D. The pattern is characterized by an "M" shape when bullish and a "W" shape when bearish.
Bullish Cypher Pattern
XA: Impulse leg up
AB: Retracement of XA by 38.2% to 61.8%
BC: Impulse leg up beyond A, extending XA by 127.2% to 141.4%
CD: Retracement of XC by 78.6%
Bearish Cypher Pattern
XA: Impulse leg down
AB: Retracement of XA by 38.2% to 61.8%
BC: Impulse leg down beyond A, extending XA by 127.2% to 141.4%
CD: Retracement of XC by 78.6%
To trade the Cypher pattern, traders typically enter long positions at D when the pattern is bullish and short positions at D when the pattern is bearish. Stop-loss orders are typically placed below or above the X point, depending on the direction of the trade.
The Cypher pattern is not as common as other harmonic patterns, but it can be very profitable when traded correctly. It is important to note that the Fibonacci ratios must be met precisely for the pattern to be valid.
Here are some tips for trading the Cypher harmonic pattern:
Use a trading platform that can draw Fibonacci retracement and extension levels.
Look for Cypher patterns in trending markets.
Make sure that the Fibonacci ratios are met precisely.
Use other technical indicators to confirm the reversal, such as RSI, MACD, and volume.
Place stop-loss orders below or above the X point, depending on the direction of the trade.
The Cypher harmonic pattern can be a powerful tool for trading trend reversals, but it is important to use it carefully and to trade with a risk management plan in place.
