Using Fibonacci to Make Money in Forex
ICWR stands for Impulsive/Corrective Wave Retracement. The ICWR forex method is a set 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 direction. The major waves in in alignment with the long-term market are called impulsive waves. Bring up a chart of any major currency (say the GBP/USD) with the interval set on daily and you will easily see the long-term direction, along with several corrective waves.
The most recurring Fibonacci ratios observed in the ICWR forex method are 25%, 38%, 50%, 61% and 75%.
Many traders use the ICWR forex method with an existing entry method to help refine their exit strategy to take out the most gain possible from the trade. Many traders have discovered that managing a trade and determining the time to exit is even 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 wave (in the direction of the long-term direction) and compute the Fibonacci ratios. Now mark the Fibonacci ratios on your chart. For example if the preceding impulsive wave UP was 100 pips, for the Fibonacci ratio of 25% you will place a line 25 pips below the top of the impulsive wave. Many charting packages come with a Fibonacci function built in, calculating the ratios and marking the lines for you.
These Fibonacci levels can then be put to use in several ways:
– go your stop loss with each impulsive wave in your favor to maximize gain and minimize risk (the 75% ratio is usually used for this)
– estimate when the corrective wave is probable to conclude in order to estimate good entry points.
Many traders tend to worry 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 take out the most gain from your trades.
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