ICWR stands for: means Impulsive/Corrective Wave Retracement. The ICWR forex method is a list of rules that traders use to determine when to enter and exit the forex market.
The ICWR forex method is based on a mix of the Elliott Wave Theory and Fibonacci ratios. Traders have discovered that corrective waves have a predisposition to retrace the preceding impulsive waves by a Fibonacci ratio.
So what are corrective waves? Corrective waves are short-term corrections that go against the long-term market trend. The major waves in the direction of the long-term market are named impulsive waves. Open up a chart of any major currency (say the GBP/USD) with the time frame set on daily and you will see clearly the long-term trend, along with several corrective waves.
The most recurring Fibonacci ratios observed in the ICWR forex method are 25%, 38%, 50%, 61% and 75%.
Most traders use the ICWR forex method with an existing entry method to help refine their exit strategy to get out the maximum gain possible out of the trade. In fact many traders have discovered that managing a trade and determining the exit point is more important than selecting an entry point and direction to trade in.
The ICWR forex method is very easy to use. Simply bring up a chart of a time frame you wish to trade, find the preceding impulsive movement (in the direction of the long-term trend) and compute the Fibonacci ratios. Now mark the Fibonacci ratios on your chart. For example if the preceding impulsive movement UP was 100 pips, for the Fibonacci ratio of 25% place a line 25 pips below the high of the impulsive movement. Most charting packages come with a Fibonacci tool built in, calculating the ratios and drawing in lines for you.
These Fibonacci ratios can then be used in several ways:
- go your stop loss with each impulsive movement in your favor to maximize gain and minimize risk (the 75% ratio is usually used for this)
- estimate when the corrective movement is probable to finish in order to estimate the best entry points.
Traders often tend to despair when their trade is in gain and it begins to go against them. By using the ICWR forex method you will be better prepared to ride out the corrective waves in order to get out the maximum gain from your trades.
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