One of the most unique but most powerful harmonic patterns appeared on Ethereum’s chart during the early New York session. Harmonic patterns can provide powerful reversal zones when used in conjunction with other forms of analysis.
The Bullish Cypher
Although all harmonic patterns are derived from the original work of H.M. Gartley, not all of the patterns are from Mr. Gartley’s work. In fact, Mr. Gartley never labeled the patterns. What he did do was create a foundation upon which others have continued his work. Perhaps the best known and most accomplished researcher and expert in Harmonic Patterns is Scott M. Carney. He is credited with discovering a great many harmonic patterns that are used today (Bat, Alternate Bat, Shark). The Cypher pattern was found by Darren Oglesbee and is one of the rarer harmonic patterns. It is similar to a Butterfly but does not show up with the same frequency as the Butterfly. As with all Harmonic Patterns, there are specific ratios that price must reach for the pattern to be confirmed.
Cypher Confirmation Conditions
- B must retrace to an expansive range between 38.2% and 61.8% of XA.
- C is an extension leg and moves beyond A – but must move to at least 127.2%, but it is normal for it to go as far as the 113% - 141.4%.
- The PRZ (Potential Reversal Zone) of D is a wide range where price must get to. Price can move anywhere between 38.2% to 61.8%.
The chart above shows the Cypher Pattern on Ethereum’s 4-hour chart, but it also exists on the daily chart. Harmonic Patterns themselves are not sufficient to decide on taking a trade to the long or short size. Other forms of analysis are required to help confirm an entry. Connie Brown’s Composite Index on the daily chart shows very bullish conditions. First, there is no evidence of any bearish divergence or hidden bearish divergence on the daily chart. Second, the Composite Index Line is crossing above both the slow- and fast-moving averages, indicating strong momentum on the chart. Another condition that is extremely favorable to a bullish bias is the %B levels. Notice that %B line dropped down below the 0.2 level, indicating a high probability bear move. Instead, we see that price and the %B have rallied higher indicating a fake-out movement lower, creating a likely bear trap. From a price action perspective, I am looking for Ethereum to continue to drive higher as a result of the Cypher pattern. I am looking for Ethereum to push the upper band of the Bollinger Bands (above 0.2 on the %B). If price can move to the upper Bollinger Band with the RSI remaining below 65, then we could predict a prolonged bull move that could end the year. The forecast of rally going into 2020 is increased by the confluence of some powerful astronomical and Gann based time cycles. This combination of time, pattern and price is a trifecta of conditions that generate powerful new trends that last for a long time.