Forex trading is an ever-evolving market, with new strategies and patterns emerging every day. One such pattern is the Cypher pattern, which is a popular trading strategy among forex traders. The Cypher pattern is a harmonic trading pattern that combines Fibonacci retracements and extensions to identify potential reversal levels in the market.
In this article, we will explain how to find the Cypher pattern in forex trading and how to use it to your advantage.
What is the Cypher Pattern?
The Cypher pattern is a harmonic trading pattern that was first introduced by Darren Oglesbee in his book, “The Harmonic Trader.” The pattern is a combination of Fibonacci retracements and extensions and is used to identify potential reversal levels in the market. The Cypher pattern typically appears at the end of a bullish or bearish trend, and it signals a change in direction.
The Cypher pattern consists of four price swings, with the second and third swings being retracements of the first and fourth swings. The pattern is completed when the price reaches the 0.786 Fibonacci retracement level of the XA swing and the 1.272 Fibonacci extension of the BC swing.
How to Identify the Cypher Pattern?
Identifying the Cypher pattern is relatively easy, and it involves following a few simple steps. The first step is to identify the XA swing, which is the initial move of the pattern. This can be a bullish or bearish move, and it is usually the longest price swing in the pattern.
The second step is to identify the AB swing, which is a retracement of the XA swing. The AB swing should retrace between 38.2% and 61.8% of the XA swing.
The third step is to identify the BC swing, which is a retracement of the AB swing. The BC swing should retrace between 38.2% and 88.6% of the AB swing.
The fourth and final step is to identify the CD swing, which is the final move of the pattern. The CD swing should be an extension of the BC swing and should reach the 1.272 Fibonacci extension level of the BC swing.
Once all four price swings are identified, the Cypher pattern is complete, and traders can look for potential trading opportunities.
How to Trade the Cypher Pattern?
Trading the Cypher pattern involves looking for potential reversal levels in the market. Traders can enter the market at the completion of the pattern, which is when the price reaches the 0.786 Fibonacci retracement level of the XA swing.
Traders can place their stop loss orders below the 1.272 Fibonacci extension level of the BC swing. This level acts as a support level, and if the price breaks below it, it could signal a continuation of the trend.
Traders can also set their take profit orders at the 0.382 or 0.618 Fibonacci retracement levels of the CD swing. These levels act as resistance levels, and if the price reaches them, it could signal a reversal of the trend.
Conclusion
The Cypher pattern is a popular trading strategy among forex traders, and it is used to identify potential reversal levels in the market. The pattern is a combination of Fibonacci retracements and extensions, and it typically appears at the end of a bullish or bearish trend.
Identifying the Cypher pattern involves following a few simple steps, and once the pattern is complete, traders can look for potential trading opportunities. Traders can enter the market at the completion of the pattern, and they can set their stop loss and take profit orders based on the Fibonacci retracement and extension levels.
Overall, the Cypher pattern is a powerful trading strategy that can help traders identify potential reversal levels in the market and make profitable trades.
