Wednesday, December 19, 2018

Cypher Harmonic Pattern, the Most Accurate Reversal Signal in Trading

Harmonic patterns offer high accuracy trading signals with the potential to reap significant profits. Trading signals will indicate the potential reversal of the trend to buy when the price is oversold or sell when the price is overbought. To find out how to trade using these Harmonic Patterns, we have previously studied basic harmonic patterns, among others; AB pattern = CD, Butterfly, Gartley, Crab and Bat. Next, we will discuss one more, namely the Cypher Harmonic Pattern.

What is the Cypher Harmonic Pattern?
The Cypher Harmonic pattern is a price pattern on the chart that indicates a potential trend reversal. Trading signals can be confirmed when the conditions for forming the Cypher Harmonic Pattern are met.

The Cypher Harmonics pattern is unique compared to other XABCD Harmonic Patterns (Butterfly, Gartley, Bat and Crab) because of the position of the legs that are upside down. Generally, the position of the first wing is sharper than the second wing. However, on the Cypher Harmonic Pattern the second wing position is sharper.

In the bullish version, the second wing (point C) is higher than the first wing (point A). Likewise in the bearish version, the wings are both jutting down rather than the first wing.

Point C is sharper than point A as an indication that the swing at the foot of XA will depart again with relatively strong strength, even though it has corrected (retrace) on the line AB. That is the reason why prices will again slide in the direction of the XA foot trend after prices retrace back to the CD line.

Because of this uniqueness, the Cypher Harmonic Pattern is relatively less common than other XABCD Harmonic Patterns. Even so, according to its inventor, Darren Oglesbee, the level of accuracy is claimed to be the highest.

Rules for the Cypher Harmonic Pattern
For accurate accuracy of price reversal signals, the Cypher Harmonic Pattern must follow the following Fibonacci line withdrawal rules:

  • In the bullish version, foot XA is pulled from the lowest price point that moves to a significant swing low. Conversely, in the bearish version, XA legs are pulled from significant swing high.
  • Line AB is a Fibonacci retracement of 0.382 to 0.618 of foot XA.
  • The BC line is starting from Fibonacci 1,272 to 1,414 from foot XA.
  • The last leg (CD) is the 0.786 retracement of Swing XC.

Ideally, all the conditions of the above regulations are met precisely so that the resulting trading signal has high accuracy. However, in practice Fibonacci retracement requirements may still shift slightly with the risk of reduced signal accuracy.

Trading Strategy with Cypher Harmonic Pattern
The Cypher Harmonic Pattern can be applied to all timeframes and all types of Forex pairs. It's just that, beginner traders are better off learning to recognize this Harmonic Pattern at an intermediate timeframe like H4 or Daily before applying it to a lower timeframe. The goal is that the signal accuracy is quite high and avoid the risk of false signals.

On the GBP / USD (H4) chart above, the Cypher Harmonic Pattern successfully indicates a bullish reversal (price reversal from falling to rising), even though the legs do not qualify perfectly. However, at least the characteristic of this pattern where point C (second wing) is higher than the first wing at point A, is fulfilled.

Generally, you can take advantage of the Cypher Harmonic Pattern trading signal to open a position as the price approaches the 0.786 retracement of Swing XC. In the picture above, the price turned out to be reversing before reaching the last leg retracement requirement. This is still reasonable because the market moves not over the pattern on your chart, but rather the dynamics of demand and supply.

So that it is not too late to anticipate a reversal, learn about candlestick reversal patterns. The aim is to confirm the reversal of the trend once the closing candlestick is at certain price points. For example, on the GBPUSD chart above, a bullish reversal is confirmed by the formation of the Morning Star candlestick pattern.

After opening the position from the Cypher Harmonic Pattern trading signal, consider also setting a target profit (TP) and Stop Loss (SL) as a form of risk management. The Stop Loss limit can be placed near the X point, while the TP can be adjusted according to each Risk / Reward Ratio. In the example chart GBP / USD above, the Risk / Reward Ratio is 2RR with a distance of SL 200 pips and TP 400 pips.

In addition to harmonic patterns, there are also simpler technical analysis of chart patterns because you do not need to pay attention to the Fibonacci lines. A full review of this can be seen at What is a Chart pattern?


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