Education

USDJPY - the Cypher pattern explained.

FX:USDJPY   U.S. Dollar / Japanese Yen
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14929
A bearish Cypher pattern is forming on this popular currency pair. It may look a bit weird, but it all points from X to C lign up nicely for a cypher pattern formation. Whether it will complete or not, I wanted to use this opportunity to give an explanation on this pattern.

How do you recognize a cypher pattern ?

The Cypher pattern was discovered by Darren Oglesbee from Trade Empowered and I have been told that at some point this was the only pattern he traded, and was very succesful at it as well as these patterns have a high success rate. This is a so-called "extension pattern", where the impulse leg (XA) is not the longest leg of the pattern but the C point extends beyond A.

What are the criteria ?

B-point : should see a minimum of 0.382 retracement of XA and cannot close beyond the 0.618 extension of that same leg.

C-point : should reach at minimum the 1.272 extension of the XA leg and cannot close beyond the 1.414 extension of that leg.

D-point : lies at the 0.776 of the complete XC move. Ideally you would look for some previous structure as well.

Where do stops go ?

As with any Harmonic pattern , stops exceed X with a certain number of pips (fixed number or defined by ATR)

Profit targets ?

Target 1 : 0.382 retracement of CD leg
Target 2 : 0.618 retracement of CD leg

You will notice that the Risk/Reward ratio is not ideal here and barely reaches a 1:1, however since this pattern is so successful, with Target 2 often reached as well, it's definitely worth it. This pattern occurs in the market quite often, so learning how to recognize it is definitely to your advantage.

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What happens if the 0.786 is exceeded is the pattern a fail?
Great exlanation.

This is what I have to add to it.

Completion is at 0,786 rather than 0,776. Minor difference but anyway...

When I trade it I use a Fibonacci inversion of X-A and set stops at 1,13.

I love this pattern and the Mighty Akil Stokes thought it to me.... (I am a 12 week transformation graduate, and a live room member). This is the only pattern I trade at the moment, and it kills!

Thanks to Darren for recognizing this awesome advanced pattern,
You are absolutely correct, on the chart it was indicated correctly, but a typo slipped into the explanation and there is no possibility to correct it I'm afraid :)
I learned it from the same master ... hehe
Nico.Muselle
Hey man, I didn´t mean to be rude at all. I liked you explanation and linked to it. I got a question on one of my ideas about the Cypher. I was too lazy to write it all out so I searched, and found yours.
Take care :)
No worries, no offence was taken and I appreciate your support ! And indeed, it is a great pattern ! :)