What Is A Cypher Pattern?
It’s one of the harmonic chart patterns, so it uses the five-points, XABCD. You’ll know it by its four price segments. Also, you’ll spot it in stocks, crypto, and forex charts. One of the cypher pattern rules is the Fibonacci ratio used to calculate the price uptrend or downtrend.
How To Trade The Cypher Pattern
The most significant point in cypher pattern trading is point D. That’s where traders watch, ready to pounce on the price wave because it’s the potential reversal zone (PRZ). In a bullish pattern, put a stop loss order below X. But in a bearish pattern, it should be above X.
How To Identify A Cypher Pattern?
The most outstanding feature of a cypher harmonic pattern is in the first three points. If you trace the form, it looks like a zigzag. You might even think it resembles a lightning bolt.
Look at the price waves to see how this pattern changes from X to D. It starts by swinging from X to A, then forms a correctional wave from A to B. An impulse wave starts to form from B to C, but before it does so, there’s a reversal. However, the trend reversal to point D doesn’t reach the level of X.
Example Of A Cypher Pattern
When charting a bullish cypher pattern, the higher highs are in points A and C. It starts high from X to A, then attempts to retrace that move from A to B, albeit unsuccessfully. Hence, the AB leg is up to 61.8% retracement of XA.
A bearish cypher pattern looks like an upside-down view of the bullish pattern. Hence, the XA leg declines from X. Further, the price trend from point A to B attempts to retrace XA. It then swings lower than point A from B to C.