To try to minimize losses, calculations such as the Bullish Cypher Pattern have been invented.
Below, we’ll explore the rules of this trading pattern and how it works. We’ll also give you tips on how to trade Bullish Cypher Pattern and how to make it part of your strategy.
What Is a Cypher Pattern?
Before we take a look at this pattern from a bullish perspective, let’s first understand what is Cypher Pattern in trading. This is a harmonic trading pattern that traders use as part of their technical analysis of price changes.
A Cypher Pattern helps to identify potential price reversals in financial or stock markets. Trading analysts don’t commonly use the Cypher Pattern. Most prefer harmonic patterns such as the Gartley pattern or Butterfly pattern for example.
The Cypher Pattern is a potential price reversal pattern.
That’s because this pattern suggests that the previous trend is over and a new one is starting. It’s important to note, however, that analysts use the Cypher Pattern along with other technical analysis tools. So, use this along with other indicators when making decisions on trading.
Cypher Pattern Trading Rules (Common Rules)
There are a number of rules to keep in mind when using the Cypher Pattern for trading. We highlight some important ones below.
- Identify the start of the pattern: This is usually indicated by a strong, sudden price movement in the trend’s direction.
- Check at what point is the pattern complete: It’s from here that you’re able to identify the Cypher Pattern and calculate the ratios.
- What about the ratios?: The different moves will have specific ratios they need to meet in order to qualify as a Cypher Pattern. If these ratios aren’t met, then the pattern is probably not valid.
Remember, the Chpher Pattern in technical analysis needs to be used alongside other indicators. But, with the above in mind, you can start plotting your next trading strategy.
What Is a Bullish Cypher Pattern?
Bullish cypher pattern rules are similar to those mentioned above. The only difference is that this time, the focus is on identifying potential bullish price reversals. This variation is actually quite rare, especially when compare to more common harmonic patterns mentioned earlier.
Four price swings make up the bullish Cypher Pattern rules. Each swing has a specific ratio which can be identified via Fibonacci rations. The price swings are:
- A sharp move upwars from X to A
- Retracement to point B at 0.382 or 0.618 of the XA movement
- A price increase at BC which retraces 0.382 to 0.886 of the A to B movement
- The last retracement down at point D. This is usually a retracement at 0.786 of the XA move
This bullish reversal pattern suggests that a downtrend in prices is over, and a new uptrend is on its way. At spotting this pattern, traders will look for opportunity to buy the stock.
How do You Trade a Bullish Cypher pattern?
First, check the start and completion of the trend’s direction in the pattern using the price swing movements mentioned above. From there, you’ll be able to confirm the Bullish Cypher Pattern based on the rations between different moves.
The next move is to place a stop-loss order at the pattern’s D point in order to limit potential losses should the pattern fail. Your bullish Cypher Pattern target profit should also be set at this point in the price swing. It should be based on the expected resistance point.
However, remember to look for confirmation from other trading analysis indicators before making the trade. Like our BIAS Depth Heatmap which is designed to be a confirmation tool for radking signals. . As mentioned earlier, the Chpher Pattern in technical analysis should be used alongside other indicators in order to avoid making mistakes.