In the world of harmonic trading, the Cypher Pattern stands out as one of the most reliable yet underutilized advanced harmonic structures. It offers high-probability trade setups when identified and traded correctly. This post will guide you through identifying the Cypher pattern, explain rules for validation, and showcase strategies for trading it profitably.
🔍 What is the Cypher Pattern?
The Cypher pattern is a five-point harmonic price formation identified by the labels X, A, B, C, and D. It is a reversal pattern and belongs to the harmonic trading family, like the Gartley, Bat, and Butterfly patterns. It usually appears during trends and offers opportunities to enter at the end of a correction.
🧩 Cypher Pattern Structure and Fibonacci Rules
To identify a valid Cypher, the following Fibonacci levels must be met:
- XA leg: The initial impulse wave.
- AB leg: Price retraces from XA, typically to the 38.2%–61.8% Fibonacci retracement of XA.
- BC leg: Price extends past point A, reaching at least 127.2% but not more than 141.4% of the XA leg.
- CD leg: Retracement of the XC leg, completing at the 78.6% Fibonacci retracement of XC.
📌 Note: Unlike other harmonic patterns, the Cypher pattern is invalidated if point C goes beyond the 141.4% extension of XA.
🛠️ How to Draw and Confirm a Cypher Pattern
Use tools like Fibonacci retracement and extension on charting platforms like TradingView or MetaTrader:
- Draw XA: Identify a strong initial move.
- Mark AB: Should retrace XA between 38.2%–61.8%.
- Project BC: Should be 127.2%–141.4% of XA.
- Identify CD: Should retrace XC to 78.6%.
📊 Entry, Stop Loss & Target Strategy
✅ Entry:
- Enter a buy trade at point D in a bullish Cypher.
- Enter a sell trade at point D in a bearish Cypher.
- Entry ideally at or just above/below the 78.6% retracement of XC.
🛑 Stop Loss:
- Place your stop loss just beyond point X.
- This ensures you’re protected if the pattern fails.
🎯 Take Profit:
Use multiple targets for optimal risk-reward:
- TP1: 38.2% retracement of CD
- TP2: 61.8% retracement of CD
- TP3: Full retracement of the CD leg
📈 Example Strategy 1: Bullish Cypher in Uptrend
Context: Market is in a bullish trend, and a Cypher pattern appears during a correction.
- XA = 1.1200 → 1.1300
- AB = 1.1300 → 1.1250 (within 38.2–61.8%)
- BC = 1.1250 → 1.1350 (extends 127.2% of XA)
- CD = 1.1350 → 1.1270 (retraces 78.6% of XC)
📌 Buy at 1.1270,
🛑 Stop Loss at 1.1200,
🎯 TP1 at 1.1310,
🎯 TP2 at 1.1330
📉 Example Strategy 2: Bearish Cypher After News Spike
Context: Sharp news-driven spike forms XA. Cypher forms during consolidation.
- XA = 1.3000 → 1.3100
- AB = 1.3100 → 1.3050
- BC = 1.3050 → 1.3150
- CD = 1.3150 → 1.3075
📌 Sell at 1.3075,
🛑 Stop Loss at 1.3170,
🎯 TP1 at 1.3040,
🎯 TP2 at 1.3010
📚 Strategy 3: Cypher + RSI Divergence
Combine the Cypher pattern with RSI divergence for confirmation:
- Look for a Cypher forming with RSI divergence at point D.
- For bullish setups: RSI < 30 at point D.
- For bearish setups: RSI > 70 at point D.
This adds strength to the reversal signal and improves accuracy.
🧠 Strategy 4: Cypher + EMA Confluence
Use moving averages for trend confirmation:
- Enter bullish Cypher only if price is above the 50 or 200 EMA.
- Enter bearish Cypher only if price is below the EMAs.
- The confluence of Cypher + trend increases win rate.
🔁 Strategy 5: Scaling In Using Partial Entries
Instead of entering full position at point D:
- Enter 50% at the 78.6% level
- Enter 50% if price dips further to 88.6% (secondary fib level)
- Stop loss below point X
- Targets remain same
This allows better average entry and lower risk.
📌 Pro Tips for Trading the Cypher Pattern
- Always confirm with volume, price action, or indicators like RSI/MACD.
- Use higher timeframes (H1, H4, Daily) for more reliable patterns.
- Avoid trading Cyphers during major news events.
- Use alerts and automation tools like TradingView’s alert system or custom EA in MetaTrader for pattern detection.
🧮 Risk Management Tips
- Never risk more than 1–2% of your capital on a single trade.
- Cypher patterns work well when combined with confluence setups.
- Backtest your strategy across multiple pairs and timeframes.
📍Final Thoughts
The Cypher Pattern is a powerful tool in a technical trader’s arsenal. Although it’s not as commonly known as other harmonic patterns, it offers high probability trade setups when identified and executed correctly. Whether you’re a forex, stock, or crypto trader, incorporating the Cypher into your strategy can significantly improve your entries and risk-reward ratios.
Start practicing this pattern today on your demo account and fine-tune your skills with real-time market data.