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Harmonic Cypher Pattern: The Most Accurate Reversal Signal in Trading

The Harmonic Cypher pattern stands out as one of the unique patterns offering the most accurate trading signals compared to other Harmonic patterns. Trading when this pattern emerges often yields significant profits, even reaching hundreds of pips. Harmonic patterns in general offer trading signals with high accuracy levels, enabling traders to achieve substantial profits. These signals indicate the potential reversal of the trend direction, meaning the potential to buy when prices are at oversold levels or sell when prices are at overbought levels. To understand how to trade with this Harmonic pattern, we have studied basic Harmonic patterns such as the AB=CD, Butterfly, Gartley, Crab, and Bat patterns. Now, let's discuss another important Harmonic pattern, the Harmonic Cypher pattern.

What is the Harmonic Cypher Pattern?

The Harmonic Cypher pattern is a price pattern on the chart that indicates the potential reversal of the trend direction. Trading signals can be considered confirmed when the conditions for forming the Harmonic Cypher pattern are met. This pattern is unique because the positions of its legs are inverted compared to other Harmonic XABCD patterns, such as the Butterfly, Gartley, Bat, and Crab patterns. In the Harmonic Cypher pattern, the second wing is sharper than the first wing. In the bullish version, the second wing (point C) is higher than the first wing (point A), while in the bearish version, the second wing protrudes downward more than the first wing. The sharper point C compared to point A indicates that the swing on leg XA will return with relatively equal strength after experiencing a retracement on line AB. Due to this uniqueness, the Harmonic Cypher pattern is relatively less commonly found compared to other Harmonic XABCD patterns, but its accuracy level is claimed to be the highest.

Basic Rules of the Harmonic Cypher Pattern

To ensure the accuracy of price reversal signals, the Harmonic Cypher pattern must follow several rules in drawing Fibonacci lines:

  1. In the bullish version, leg XA is drawn from a significant low point to the highest price, while in the bearish version, leg XA is drawn from a significant high price.

  2. Line AB is a Fibonacci retracement between 0.382 to 0.618 of leg XA.
  3. Line BC is a Fibonacci extension between 1.272 to 1.414 of leg XA.
  4. The last leg (CD) is a 0.786 retracement of swing XC.

Ideally, all the above conditions should be met precisely to ensure the accuracy of trading signals. However, in practice, slight deviations in the Fibonacci retracement conditions are still acceptable with a slight reduction in signal accuracy risk.

Trading Strategy with the Harmonic Cypher Pattern

The Harmonic Cypher pattern can be applied to all timeframes and Forex currency pairs. However, for novice traders, it is recommended to first study this Harmonic pattern on medium timeframes such as H4 or Daily before applying it to lower timeframes. This is to ensure a relatively high level of signal accuracy and to avoid false signals.

In the example chart of GBP/USD (H4), the Harmonic Cypher pattern successfully indicated a bullish reversal, although its legs did not perfectly meet the conditions. You can utilize Harmonic Cypher pattern trading signals to open positions when prices approach the 0.786 retracement of swing XC. Although prices may have already reversed before reaching the final retracement condition, this can still happen because the market moves based on supply and demand dynamics. To anticipate reversals, you can use reversal candlestick patterns to confirm trend reversals.

After opening positions based on Harmonic Cypher pattern trading signals, consider setting profit targets (TP) and stop-loss (SL) as part of risk management. SL can be placed near point X, while TP can be adjusted based on each risk/reward ratio. In the example chart of GBP/USD above, the risk/reward ratio is 2:1 with an SL distance of 200 pips and TP of 400 pips.

By understanding the Harmonic Cypher pattern and following the right trading rules and strategies, you can use it as an effective tool to identify potential trend reversals and profit in Forex trading.

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