For everyone that went into trading, irrespective of the kind of trading, one of the first things that come to their mind is an avenue to make money by leveraging on the volatility of the market, but the truth is there is more to doing so, there is more to trading than just making profits. For you to successfully have an amazing trading experience, there is a need to have a proper understanding of the different strategies you can employ and how to deploy them. If not, traders will have to blame themselves for the losses and penury than will follow.
Depending on what you are trading in today’s global market, either currencies, stocks, commodities, or crypto. You must have a strategy (or strategies) that will help you maximize profitability in the market you are trading.
The last thing you want to only dedicate your attention to in trading is how to place trades and close them in any bullish and bearish movements, as there is a need to understand the different strategies and patterns needed to accurately predict the market movement. Among the prominent patterns in the market are bilateral patterns, reversal patterns, and continuation patterns.
However, as it relates to the crypto market, this guide will focus on a trading strategy established through the cypher pattern and how it can be applied in crypto trading.
What is Cypher Pattern?
To get started, we must answer “what is a cypher pattern?” before we start talking about how to use it.
Cypher Pattern is a zigzag technical pattern that was first introduced by Darren Oglesbee. This pattern is used to discover the trending movement of the market and the possible quick reversals during the day in an entire trading day.
Using the cypher pattern works for both bullish and bearish trends. It gives harmonic patterns that allow for successful trading. This pattern serves as the projection of the unified price action pattern that we see in every market. To master this trading strategy as a trader, you must be able to draw the cypher pattern perfectly. Studies show that this pattern alone is enough trading strategy needed by any trader.
The Rules guiding the Cypher Pattern
For every pattern and trading strategy in the market, there are certain guidelines and rules that you must follow to get it perfect. The same applies to the cypher pattern, you must understand the guidelines attached to this pattern for efficient use.
To identify the cypher pattern, you are looking out for five different points namely the X, A, B, C, and D pints. And each of these points is connected by lines which are often called legs. So, by implication, there are four legs in the cypher pattern, namely XA, AB, BC, and CD. The cypher pattern begins with the XA leg and ends with the CD leg with point D as the end of the pattern. After you have identified these legs and points, there are still some directives you need to follow:
1. point B has to be a reversal and must range between the 38.2% and 61.8% of the XA leg on the Fibonacci level. This means that the minimum possible level for point B to be valid is 38.2%, while the maximum possible level is 61.8%.
2. The XA leg and the BC leg are in the same direction, hence point C is in the area as point A, but it extends further than A, however, for point C to be valid, the minimum level on the Fibonacci sequence is 127.2% and the maximum possible is 141.4%.
3. The CD leg should intercept the XC as the 76.8% Fib level.
4. The limit to where the price is heading is always the Region of Potential Retracement of point D. This is always between the 38.2% and 61,8% Fib level.
As mentioned before, any pattern that doesn’t fit into these directives and requirements cannot be named a cypher pattern, and it should not on any occasion be called one. The truth is there are many XABCD patterns in the market, and for any sequence to be called a cypher pattern, it must fit into the directives listed above.
The Steps Involved in Cypher Pattern Trading Strategy
After unveiling what the cypher pattern trading pattern is and how to identify the perfect pattern in the market, it is also essential to understand how to use the pattern to trade. This section will cover the list of straightforward principles that can help you execute trades perfectly with the trading strategy. The essence of this guide is to help you as a trader minimize the level of risk involved in your trade and also to help you maximize your net profit.
However, before diving into the execution of the cypher pattern trading strategy, there is a need to understand perfectly how to draw and apply the trading pattern. Also, you must have indications as to the perfect time to draw and apply the pattern in any trading session.
With that said, below are the steps every trader must follow to stand out in their usage of the cypher pattern trading strategy.
- Step 1: Finding and drawing the cypher pattern
i. Using the indicators on your charting system, the first thing to do is to find the harmonic pattern indicator. If you are using the Trading View platform, the harmonic pattern is always in the toolbar which is at the right-hand side of the chart. But if you are using the MT4 platform, you can find the indicator in the library of indicators on the application.
Also read:ii. Using the indicator, go ahead and identify the X point of the cypher pattern. It can be any trough or crest of the waveform. Once you locate the point successfully, you have to examine and follow the market trend closely.
iii. For a harmonic pattern to be constituted in trading, there must be a minimum of four trending highs (higher highs) or trending lows (lower lows) joined together. However, each leg of the harmonic pattern must go in line with the directive of the cypher pattern trading rules listed above.
- Step 2: Understanding the Right Time to Buy
After drawing the pattern, you must be able to understand the right time to place your trade. For the cypher pattern, what you are looking out for is the reversal of the CD leg. Immediately the leg reaches the 0.788 Fib level, you can place your trades. Another point to place your trades is just before the market gets to the XC leg.
- Step 3: Setting your Stop Loss
Stop-Loss (SL) is the point you are expecting the market to get to for your trading setup to be invalidated. Though, traders most often just set stop loss only based on the percentage of their equity they are willing to risk for the trade.
However, for the cypher pattern trading strategy, the protective stop loss for the trade should be just below the X point on the trend. The point has been proven to be the best position that prevents traders from losing too much should in case the market breaks below that point.
- Step 4: Securing your Profit or Setting the Take Profit Level
Take Profit (TP) is that point you want to secure your profit on the trade and exit the market. You might be on the lookout personally or depending on your trading platform, input it and allow the platform to close the trade for you automatically.
For the cypher pattern trading strategy, you should secure your profit at point A. it is highly recommended that you take your profit as early as you can due to the retracing characteristic of the cypher patterns. It is very essential to know that the market can reverse at any point in time.
Just to ensure that you are not caught in the new swing, which you cannot predict when it will happen, it is highly recommended that you don’t delay in securing your profit. For this trading pattern, there is a conservative target for booking your profit. So, for the cypher pattern trading strategy, you should secure your profit once the market gets to point A of the pattern.
Any trader that follows the steps listed above religiously will be able to maximize their profitability and save themselves from unforeseen loss when using the cypher pattern trading strategy.
Bullish and Bearish Cypher Patterns Rules
Just like the patterns and trends are created by the candlesticks in the market, there can also be either a bullish cypher pattern or a bearish one. The principal issue for the cypher pattern is that the bullish cypher pattern has its trough (high points) and crest (low points) trending upwards. And for the bearish one, the trough and crest form a downward trend.
Also, there are points on the cypher pattern that are considered important, and they are the X, C, and D points. For the formation of a bullish cypher pattern, point X must be at the lowest point of the trend while point C is the highest point. The reverse is the case for the bearish cypher pattern; the X point has to be the highest while the C point is the lowest.
For the bearish cypher pattern, point A and C are the low points while point D is lying just below point X. For the bullish cypher pattern, the A and C point is then the high points, and C is slightly above the X point.
The way the bullish cypher pattern is structured is such that it looks like the letter M in the English alphabet, and the bearish cypher pattern is just the opposite of the bullish one, which looks more like the letter W in the English alphabet.
Apart from these structures listed here, other properties of the cypher pattern, either bullish or bearish are the same. Other properties include the entry, stop loss, the profit-taking principle, and the ratios. This means that the current trend of the market doesn’t matter as much as you have gotten the perfect structure and the setup, you are hitting your trades either market is bullish or bearish.
The Success Rate of the Cypher Pattern Trading Strategy
The truth is no strategy offers a hundred percent success rate, even including those outside trading, but on average, using the harmonic trend of the cypher pattern can guarantee you a success rate of 80%.
However, many successful traders have opined for every strategy to be valid, the minimum success rate for the strategy should be around 40%. Having anything below this minimum of 40% shows that the result of the trading strategy is inefficient.
So, to place this cypher pattern trading strategy on the 40% success rate and the Risk-Gain ratio, we can conclude that the trading strategy has a very good great efficiency. But it is advised that traders are careful not to misuse the patterns either by overtrading or trading an imperfect so as not to incur too many losses while trading.
Other Skills You needed to be a Successful Forex Trader.
The only thing you need to know to be a successful trader is not the cypher pattern trading strategy, as there is a need to understand the other fundamental requirements to be a trader.
In this section of the guide, we will consider the other skills you need to have to be successful as a trader.
- Diligence in Research
As a trader, one of the skills you must possess is diligence, especially in making research. The truth is trading is not for a lazy person, at least, those who want to be successful at it. Before staking your equity on any trade, you must have carried out your adequate research. For example, every forex trader knows that there is also a need for fundamental analysis even though you have done your technical analysis in the charts. For a lazy trader, you might perhaps neglect the habit of checking the current news because you are lazy, and it can be detrimental to your success as a trader.
- Discipline and Emotion Management
One of the things that have led to the downfall of many traders and have seen them lose their fortune is the lack of discipline.
Every successful trader needs to be disciplined enough to manage their emotions to maximize their profit and minimize loss. One of the common experiences most traders have is the inability to secure their profits or book a small loss because they had thought the market will always keep going in their direction. However, the disciplined ones are strict with their plans and they don’t let their emotions get the best of them when trading.
- Get Proper Education
Most traders jumped into the market based on the ecstasy they feel from their fantasy. Many of them have heard the success stories of successful traders, and they are looking for the same, but sadly without getting a proper education.
There is fundamental knowledge every trader must possess, and even as an established trader, you must imbibe the policy “learning never ends,” and make yourself open to learning new things you probably are not aware of but can contribute to your success as a trader.
- Practice and Practice
Yes, it is not a repetition, you must practice over and over again. And this is where having a demo account comes in even if you are an established trader. It is not wise to practice new strategies on your real account as they might not often go well, or you might not get it right immediately.
Having a demo account makes it easier to try new things that can eventually contribute to your overall profitability as a trader.
- Find your Strategy and Stick to it
After trying different strategies on your demo account, and you have found the perfect one you like, you can now import it to your real account and stick to it. The truth is there are many strategies out there, and the more you search, the more you will find, but you should stick to the one you are sure of because the time you will spend learning others is better off spent on mastering the one you are used to.
Conclusion
Cypher Pattern is one of the most exciting kinds of XABCD harmonic patterns. However, the trading strategy is very helpful as it comes with adequate risk management for every trading session. Based on the analysis, the trading strategy has a very high success rate and also you can reduce the losses incurred in trading with the pattern.
There is indeed a success rate attached to the cypher patterns over most other harmonic trading patterns, but it is very difficult to see the pattern meeting the requirement perfectly on the trading charts. This is the reason why traders are implored to not force it when all the checklists are not ticked.
Another thing that makes the cypher patterns trading strategy very reliable over other harmonic patterns is the testimonies it has generated from forex traders.
Conclusively, as a trader who is looking to stand out and make more profits in the forex market, there is a need to study the cypher pattern trading strategy in detail including every other aspect of trading that can help you succeed especially market indicators and how to use them very well.
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