TomHall

LEARN TO TRADE THE CYPHER PATTERN

FX:EURUSD   Euro Fx/U.S. Dollar
STAGE 1:
THE BULLISH IMPULSE LEG

A bullish impulse leg is a strong move in price action             to the upside.
The impulse leg can be a mixture of bullish and bearish candles, but must have a bullish overall direction.
The start of the impulse leg should be marked as X and the top of the impulse leg should be marked as A.


STAGE 2:
B LEG RETRACEMENT

Now that you have identified your X to A impulse leg you are now looking for the B leg, which is a retracement of the X to A impulse leg.

Take your Fibonacci retracement tool and draw from your X leg to your A leg.
The crucial Fibonacci levels you are looking for are the 38.20% and 61.80%
Price action             must at least touch the 38.20% retracement but cannot close below the 61.80% retracement.

As you can see by the illustration, the candle does not need to close below the 38.20% retracement but must at least spike through.
The bullish Cypher pattern will be invalid if price action             closes below the 61.80% retracement of the X to A move.


STAGE 3:
C LEG EXTENSION

Once you have identified a valid X to A impulse leg and a B leg retracement,
you are now looking for a valid C leg extension.

Take your Fibonacci extension tool and draw from X to A and then back to X.
The crucial Fibonacci extension levels you are looking for are the 127.20% and the 141.40%

Price action             must at least touch the 1.272% but cannot close above the 1.414%.
As you can see by the illustration the candle does not need to close above the 127.20% but must at least spike through.

The bullish Cypher pattern will be invalid if price action             closed above the 1.414%


STAGE 4:
D LEG COMPLETION

Now that you have a valid X, A, B and C move you are looking for the final leg in price action             at which point you will buy the chosen currency pair.

Take your Fibonacci retracement tool and draw from your X leg to your C leg.
You are looking for a 78.60% which will now give you a valid D leg completion of the bullish Cypher pattern.


STAGE 5:
PLACING YOUR TARGETS

When looking to take targets on the bullish Cypher Pattern the first step is to use your Fibonacci retracement tool.

With your Fibonacci retracement tool draw from the C to D leg, you are looking for target 1 at the 38.20% and target 2 at the 61.80%.
To protect the profits you have accumulated at target 1 it is advised you move your stop loss to breakeven once the 38.20% target 1 has been attained, thus giving you a risk free trade to target 2.


KEY NOTES & RULES:

When trading the bullish Cypher pattern , the pattern is meant to be traded at 78.60% D leg completion only.
If you believe the pattern is unfolding but price is only at point B, be patient and wait until price reaches the D leg completion.
The power of the pattern comes from converging Fibonacci levels of all points from X to D.

Point B must at least touch the 38.20% retracement but cannot close below the 61.80% from the X to A move.
Point C must touch the 127.20% but cannot close above the 141.4%
Point D is complete when price action             touches the 78.60% retracement of the X to C move.
Stop loss must be placed below the X leg structure support .
Target 1 at the 38.20% retracement of the C to D move.
Target 2 at the 61.80% retracement of the C to D move.


CURRENCY PAIR:
This pattern like any other is more profitable with certain currency pairs, you should do your own back testing on this before trading this or any pattern.


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DISCLAIMER:

Please note I am only providing my own trading information for your benefit and insight to my trading techniques, you should do your own due diligence and not take this information as a trade signal.
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Cheers for the chart Tom!
Reply
Very important point is missed. After all the requirements are filled and D-point is calculated as the 0.786XC retracement you MUST check if the D-point is exceeding B. In case of bullish pattern it should be at least 1 pip below B-point. If not, then the patterns is ivalid. D-point MUST terminate beyond the B-point.
Also very important. If price goes beyond 0,786XC then the target should be calculated as the retracement from C-point to whatever price is beyond 78.6. It means that the pattern requires active target management until price gives a factual reversal (even if it reverses 1 pip away from X-point). That's why cypher usually gives you inverted risk to reward (first target)
Also very important that you take some profits at 0.382CD, not only breakeven the trades. If take some profits at 38.2 then the accuracy of cypher is 70-75%. Doing so you can trade large portfolios of 15-20 pairs. In this case your largest drawdown will not be very big (not more than 6 losers in a row according to my research). But if you only take the target of 61,8 then the accuracy of the pattterns lowers all the way down to 55%. Trading large protfolio in this case is not recommended unless you can withstand large drawdowns (up to 12 losers in a row according to my research)
I don't want you to rely on my words only and do a research of cyphers on your own. If you do it, hopefully you will realize that knowing the ratios only is NOT enough for succesful trading of the pattern.
Don't be timid to contact me in Private Messages if you have some questions about the reseach work.
+1 Reply
TomHall TOP Alexander_Nikitin
If you are using the fibs above, then the D leg will always exceed the B point.
Yes i agree there are other criteria that can be implemented, traders should always do their due diligence prior entering the markets.
+1 Reply
If you have your B exceeding 61.8 and C-point exceeding 1.414 then D-point will hardly exceed B.
+2 Reply
TomHall TOP Alexander_Nikitin
For me personally, if the setup has less than a 1:1 risk reward ( minus discretion ) then the trade would not be placed.
If the D leg completion is parallel or above the B leg then i personally wouldn't take the trade.
Reply
Cypher is not something personal. If it is personal then it is not a cypher. Call it "personal pattern".
Here's the situation I talked about
snapshot
Reply
TomHall TOP Alexander_Nikitin
I think you misinterpret what i mean my 'personally'.
Just because i wouldn't 'personally' take the trade does not mean it is incorrect.
+1 Reply
If you will not take a trade this means you will not have the right probabilities. How do you know that filtering trades this way you will still have a positive expectancy? Your approach may easily filter all the winners leaving you only losers))
Reply
TomHall TOP Alexander_Nikitin
I know what my expectancy is which i have backtested and calculated.

I have also attached my verified results for you below.
http://www.myfxbook.com/members/uk_forex_signals/uk-forex-signals/1384985
Reply
Alexander_Nikitin Alexander_Nikitin
By the way. Cypher XA is not necesserily an impulse. It can also be an anchor leg. Usually impulse is understood as a violation of previous Highs/Lows. Your definition of "A bullish impulse leg is a strong move in price action to the upside." Is not correct.
+1 Reply
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