Market signals generated by ICWR

Before starting to apply the Intraday ICWR Trading Rules, the first thing to do is to recognize from the candlestick chart the actual candidate for being an impulsive or a corrective wave. This candidate we will call from now on the active wave. How to recognize the active wave from the candlestick chart is shown in chapter 3.1.1.

After having recognized the active wave we apply the Intraday ICWR Trading Rules. Based on these rules our strategy generates bullish or bearish signals that can be used for entering as well as exiting the trade either on a long or a short side. How to apply the Intraday ICWR Trading Rules once an active wave is recognized is shown in chapter 3.1.2.

3.1.1. Recognition of the active wave

The active wave is the nearest market movement to the actual time of our trading with a height greater than 40 pips. In order to find the active wave from the candlestick chart the following steps are to be done:

First identify all possible upward and downward waves that seem to be close to or greater than 40 pips on the candlestick chart as shown in Figure 3.1.

Figure 3.1.

Then draw the waves, connecting the extreme values of the starting and the ending point as shown in Figure 3.2. If the wave goes downwards we are going to connect the high value of the starting point with the low value of the ending point. Else if the wave goes upwards we are going to connect the low value of the starting point with the high value of the ending point.

Figure 3.2.

Enumerate the waves starting with the nearest wave to the actual time as shown in Figure 3.3. Please notice that the actual time is always at the right of the candlestick chart.

20:00 21:00 22:00 23:00 00:00 01:00 02:00 03:00 04:00 05:00 06:00 07:00 01 04 00:35

01.04.05

Figure 3.3.

20:00 21:00 22:00 23:00 00:00 01:00 02:00 03:00 04:00 05:00 06:00 07:00 01 04 00:35

01.04.05

Figure 3.3.

Afterwards read the extreme values of each wave and calculate its height. Wave 1:

Height = High - Low = 1.3493- 1.3439= 0.0044 = 44 pips Wave 2:

Height = High - Low = 1. 3495- 1. 3448= 0.0047 = 47 pips Wave 3:

Height = High - Low = 1. 3499- 1. 3450= 0.0049 = 49 pips

Finally identify the nearest movement to the actual time position with a height equal or greater than 40 pips. In this example it is the wave 1. This is now the active wave (see Figure 3.4).

Figure 3.4.

If none of the waves has a height greater than 40 pips you have to go further in the past until the active wave is found.

As the time goes on a new movement with a height greater than 40 pips will occur. In that case the previous active wave gets inactive, and we get the new active wave (see Figure 3.5).

3.1.2. Applying the Intraday ICWR Trading Rules to an active wave

Every time a new active wave is recognized the Fibonacci levels are to be drawn (see Figure 3.6). We will draw only the 0.000, 0.250, 0.382, 0.618, 0.750 and 1.000 levels. The level 0.000 is defined by the lower extreme value, the level 1.000 by the higher extreme value. The Fibonacci levels start at the ending points of the wave. Most of the software packages will do this automatically for you, however if your software doesn't have such a feature you can do it manually. In the example below you would subtract the low value from the high value (1.3317 - 1.3257) and you would get a height of 0.006 or 60 pips. You would then use the following formulas to get the Fibonacci levels.

The level 0.382 defines the lower retracement level, the level 0.618 the upper retracement level. The retracement channel is the channel between the upper and the lower retracement levels:

Figure 3.7.

The level 0.250 defines the lower confirmation level, the level 0.750 defines the upper confirmation level:

The levels 0.000 and 1.000 have no trading relevance. They are only drawn for confirming that the Fibonacci levels are drawn properly.

The Intraday ICWR Trading settings are done, now we need to see what the market is telling us. First we will concentrate only on the retracement channel. We wait until the retracement channel is triggered. Only then we can use the confirmation levels.

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