The Most Powerful Consolidation Pattern
What is the Cypher Pattern?
Cypher is a powerful consolidation pattern. In the harmonic pattern world, the Cypher pattern is a four-leg reversal pattern that follows Fibonacci ratios. The Cypher pattern is less common because it's hard for the market price to match up with fixed Fibonacci ratios. The Cypher pattern needs to follow the Fibonacci sequence in order to work correctly. This pattern works well in the ranging markets. The winrate of this pattern can reach up to 70%. On an hourly timeframe, for example, it has a 72% win rate on AUDCAD.
Defining the Cypher Pattern
The first rule of the Cyper pattern is that the price of a security must stay above the 0.382 Fibonacci ratio and below the 0.618 Fibonacci ratio. There is a third point in the Cypher pattern, which is labeled "B." This is the point where XA's swing-leg retraces the 0.382 to 0.618 Fibonacci retracements.
The next rule of the Cypher pattern is a Fibonacci extension of the XA leg that comes in at 1.27, but it doesn't exceed the 1.414 Fibonacci ratios. This point of the move is labeled "C" and completes the BC swing-leg of the Cypher pattern. The final part of the Cypher pattern is where our orders will be executed. This is at the point D, which is located at the 0.786 Fibonacci retracements of the entire move started from X up to C.
How to Correctly Draw Cypher Pattern
1. The XA Move
The market creates an impulse/anchor leg when prices move a lot in a specific direction. This is the leg that is farthest away from the body. Once we know which direction we want to go, we can look for other things that need to be met in order to go that way.
2. The AB Move
After our initial move, we will look for price action to confirm our new position. If the candlestick matches the distance between the two legs by at least 38.2% then the move is considered valid. Price action does not have to close above the 38.2 be considered a valid.
The (B) leg of the trade is considered invalid if the price action does not hit a minimum of 38.2% of the original price of the (XA) move, or if it closes beyond the 61.8% retracement of the (XA) leg's original price.
3. The BC Move
Once we have met the requirements for step 2, we can look for the C leg. The market created a valid C leg by fulfilling at least a 127.2 extension of the (XA) leg. Price action also has to close above or below the previous (A) leg. This leg is invalid if it doesn't fulfill a 127.2 extension of (XA) or if it closes beyond a 141.4 extension of (XA).
4. Entry point
The market formed a successful entry point by following a 78.6% retracement of the previous move. The market forms a successful (D) completion point (entry) by fulfilling a 78.6 retracement of the (XC) move. For this completion to be valid, the (D) leg must exceed the (B) leg.
Take Profit, Stops, and Entries
Entry: The (D) completion point, which is the 78.6 retracement of the (XC) move, serves as the entry point for the Cypher pattern.
Stops: It is recommended to place stops 10 pip's beyond the (X) point.
TP1: The 38.2 retracement of the (CD) leg is the first target. If targets are met, then stops move to breakeven.
TP2: The (CD) leg's 61.8 retracement represents Target 2.
*Fibonacci retracements should be updated to the highest/lowest (D) point following entrance if price movement continues.
Examples
Conclusion
The Cypher trading strategy has a higher winning percentage than other harmonic patterns, but it's rare to see it appear on the chart. So, we need to take full advantage of the times it does show up.
Cypher is a powerful consolidation pattern. In the harmonic pattern world, the Cypher pattern is a four-leg reversal pattern that follows Fibonacci ratios. The Cypher pattern is less common because it's hard for the market price to match up with fixed Fibonacci ratios. The Cypher pattern needs to follow the Fibonacci sequence in order to work correctly. This pattern works well in the ranging markets. The winrate of this pattern can reach up to 70%. On an hourly timeframe, for example, it has a 72% win rate on AUDCAD.
Defining the Cypher Pattern
The first rule of the Cyper pattern is that the price of a security must stay above the 0.382 Fibonacci ratio and below the 0.618 Fibonacci ratio. There is a third point in the Cypher pattern, which is labeled "B." This is the point where XA's swing-leg retraces the 0.382 to 0.618 Fibonacci retracements.
The next rule of the Cypher pattern is a Fibonacci extension of the XA leg that comes in at 1.27, but it doesn't exceed the 1.414 Fibonacci ratios. This point of the move is labeled "C" and completes the BC swing-leg of the Cypher pattern. The final part of the Cypher pattern is where our orders will be executed. This is at the point D, which is located at the 0.786 Fibonacci retracements of the entire move started from X up to C.
How to Correctly Draw Cypher Pattern
1. The XA Move
The market creates an impulse/anchor leg when prices move a lot in a specific direction. This is the leg that is farthest away from the body. Once we know which direction we want to go, we can look for other things that need to be met in order to go that way.
2. The AB Move
After our initial move, we will look for price action to confirm our new position. If the candlestick matches the distance between the two legs by at least 38.2% then the move is considered valid. Price action does not have to close above the 38.2 be considered a valid.
The (B) leg of the trade is considered invalid if the price action does not hit a minimum of 38.2% of the original price of the (XA) move, or if it closes beyond the 61.8% retracement of the (XA) leg's original price.
3. The BC Move
Once we have met the requirements for step 2, we can look for the C leg. The market created a valid C leg by fulfilling at least a 127.2 extension of the (XA) leg. Price action also has to close above or below the previous (A) leg. This leg is invalid if it doesn't fulfill a 127.2 extension of (XA) or if it closes beyond a 141.4 extension of (XA).
4. Entry point
The market formed a successful entry point by following a 78.6% retracement of the previous move. The market forms a successful (D) completion point (entry) by fulfilling a 78.6 retracement of the (XC) move. For this completion to be valid, the (D) leg must exceed the (B) leg.
Take Profit, Stops, and Entries
Entry: The (D) completion point, which is the 78.6 retracement of the (XC) move, serves as the entry point for the Cypher pattern.
Stops: It is recommended to place stops 10 pip's beyond the (X) point.
TP1: The 38.2 retracement of the (CD) leg is the first target. If targets are met, then stops move to breakeven.
TP2: The (CD) leg's 61.8 retracement represents Target 2.
*Fibonacci retracements should be updated to the highest/lowest (D) point following entrance if price movement continues.
Examples
Conclusion
The Cypher trading strategy has a higher winning percentage than other harmonic patterns, but it's rare to see it appear on the chart. So, we need to take full advantage of the times it does show up.
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