What Is the Cypher Pattern?
It’s not unusual to see geometric shapes used on forex charts, and the harmonic Cypher pattern is a good example of that. This pattern is part of harmonic patterns and is one of the more widely used harmonic patterns, with a reputation among traders for a strong win rate in the forex market. Related reading: Gartley Pattern Trading Rules.
The Cypher pattern is one of the few harmonic patterns that wasn’t defined by Scott Carney — it was discovered by Darren Oglesbie. Even though it’s a technically advanced shape, it’s often grouped and traded alongside the other harmonic patterns, though it has its own set of Fibonacci measurements for each point. Its key features include:
- The Cypher harmonic pattern is a reversal pattern
- Like other XABCD patterns, it has 4 legs, or waves
- It follows Fibonacci ratios strictly
What Is the Cypher Pattern?
The Cypher pattern is an advanced, relatively modern harmonic pattern. When traded correctly, it can offer a strong win rate along with a good average reward-to-risk ratio.
The Cypher pattern is a five-point pattern made up of XABCD points, and it’s easy to spot on a chart because of its distinctive wave-like shape, showing either rising peaks or falling troughs. Traders can trade it like other harmonic patterns by waiting for a reversal at the end of the structure, then using pending orders to act on any potential profit opportunity.
The Cypher pattern resembles the Butterfly pattern in its structure and in where it tends to form — near the end of trends. Even so, the Cypher pattern is rare and doesn’t appear often, though that rarity doesn’t make it any less powerful or profitable than other patterns.
The Cypher pattern is known for having a high positive expectancy, not unlike the Bat or Crab patterns. Just like every other harmonic pattern, the Cypher pattern has specific rules and conditions that must be met for it to count as complete.
How to Identify the Cypher Pattern
The pattern needs to meet a few conditions for confirmation:
- Point B must retrace to a level between 38.2% and 61.8% of XA — at least 38.2%, but not more than 61.8%.
- Point C is a long extension of the wave and sits beyond point A. It must extend to at least 127.2%, and it’s normal for it to reach 141.4%. The Cypher pattern is considered invalid if it goes past 141.4%.
- The CD leg must break the 78.6% level of XC.
- The potential reversal zone for point D is a larger level the price must reach, and price can move anywhere between 38.2% and 61.8%.
The Cypher pattern also has fewer rules to satisfy for validation compared to other harmonic patterns. While its success rate isn’t especially different from the Bat or Crab, how often it shows up and how simple its rules are make it a favorite among beginner traders.
This pattern works better when the market is calm — meaning a market with a strong trend — but after major news events, the Cypher pattern becomes less reliable. The larger the pattern is on a higher timeframe, the longer it takes to form, and the stronger the resulting support and resistance levels tend to be.
What Does the Cypher Pattern Tell You as a Trader?
The core rule here is that point B cannot touch the 78.6% retracement from X to C, including candlestick wicks. Below are the bullish and bearish Cypher patterns.
In any pattern, points X, C, and D are the most important. For the bullish Cypher pattern, X must be the low leg and C the highest point in the pattern — which makes the bearish Cypher pattern’s highest level sit at X and its lowest level at C.
In the bullish Cypher pattern, points A and C must form consecutive higher highs, and point D must be higher than X. In the bearish Cypher pattern, A and C form consecutive lower lows, and point D must be lower than X.
So the Cypher is a technical wave pattern where the market trends but makes sharp reversals within the day. The key point in the bullish Cypher is that both the troughs and the peaks trend upward; for the bearish pattern, the opposite happens.
If the pattern completes successfully with a reversal at point D, it can eventually turn into a trend channel where price moves between the highs and lows, and entry points can also appear inside price channels that have already formed.
How Do You Trade When You Spot the Cypher Pattern?
When trading the Cypher pattern, you apply a set of simple rules aimed at reducing risk and supporting profits. Before setting the strategy rules, there’s one more important step to learn first: drawing the pattern.
To make this easier, especially if you’re a beginner, click the harmonic pattern tool on the right-hand toolbar in TradingView, then mark the starting point X on the chart — this can be any low or high reversal point.
Once you’ve marked your first high or low reversal point, follow the market’s swing movements. At this stage you need to validate each leg and stick to the Cypher pattern’s forex Fibonacci ratios.
After that comes the actual trade. Now that you know how to identify and draw the Cypher harmonic pattern, it’s time to trade it. The standard ways of trading the Cypher pattern include the following:
Cypher Pattern Entry Point
The Cypher pattern is often considered one of the stronger harmonic patterns for risk management, given its historically high win rate. Back-testing has repeatedly shown the forex Cypher pattern to be a fairly reliable harmonic pattern.
To set entry points, buy with a market order at the first candle before point D completes, at the 0.786 Fibonacci retracement of the XC leg. Once the market touches the 0.786 level, the D wave becomes the entry point, since you can’t control how far the market will continue to move from there.
When the CD leg reaches the 78.6% retracement level, the Cypher pattern is complete and valid for trading. The 78.6% Fibonacci retracement from X to C also works as a standard entry point for trading a completed Cypher pattern.
Setting Take-Profit on the Cypher Pattern
There are different ways to take profit with this pattern, but the standard method is to set a first take-profit level and close the trade at a second take-profit level. Profit-taking here happens once price reaches point A. To find these levels, draw Fibonacci retracements on the CD leg.
Setting Stop-Loss on the Cypher Pattern
Place your stop-loss at least 10 pips above X on small and medium timeframes when trading the bullish Cypher pattern.
For the bearish pattern, place the stop-loss at least 10 pips below the low of X. Make sure the stop-loss also sits at least 10 pips above the highest level of X — this is described as the only logical placement for the stop-loss, because any break past it will automatically invalidate the pattern, and the trade with it.
Finally, how you trade the Cypher pattern depends on it being a reversal pattern, so make sure you confirm the trend reversal and the price shifting into the new trend. If you’re not a fan of reversal strategies and prefer trend-following instead, follow the MACD direction with a very simple trend-following approach in forex trading.
Always take profit once you reach point A of the pattern, since it represents a strong take-profit target.
For most harmonic pattern trading approaches, it’s better to take profit as quickly as possible. The Cypher is regarded by many traders as one of the more profitable harmonic patterns, and it can give you more room to capture gains from the price move — with the Cypher pattern, you’ll typically get at least a chance to see a retest of the A wave.
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Disclaimer: This article is for educational purposes only and does not constitute investment advice. The Cypher pattern, like all harmonic and technical chart patterns, is a tool for reading price structure — it does not guarantee any trading outcome, and signals based on it can fail. CFD and forex trading carries a high level of risk to your capital and may not be suitable for all investors. This page may contain affiliate links; we may earn a commission if you sign up through them, at no extra cost to you.
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