Introduction
Two completely opposite “schools of thought” dominate today’s public opinion when it comes to financial markets. One school of thought is advocated by academic types, mostly economics, finance and mathematics professors. They will tell you that “markets are efficient” and that there is a zero chance for an individual to outperform any liquid financial market in the long run. Well, of course the guys with cushy university jobs, without any real world or business experience, will tell you that you don’t stand a chance to succeed. You should continue to work your little day job so that they have someone to make their sandwich or to change oil in their cars. People who subscribe to this theory usually choose to stay out of financial markets and keep their cash stashed in their mattresses.
Another school of thought is advocated by financial TV and radio stations, investment firms, brokerages etc… “Surprisingly” they are all trying to portray financial markets as an idyllic place where happy Moms, Dads and Grandpas use sophisticated software to place winning trades from their laptops while vacationing on sandy Caribbean beaches… Countless “talking heads” are enjoying their daily parade on TV channels such as CNBC or CNN supplying mostly worthless advice to general public. Their “analysts” change their opinion every day in a fashion that even George Orwell would find hard to comprehend. And everything they say always seems to “make sense” at the moment when they are saying it. Next day, when it turns out that they were totally wrong, they are telling you an entirely different story as if yesterday never happened. And if you noticed, the hosts never, ever bring that up. Why? Well, “the show must go on”. They have to show you that every day you are missing on countless trading opportunities; you just need to watch their shows, subscribe to fancy software that they sell you and you are on your way to early retirement.
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I do agree with the statement that financial markets are efficient. They are very efficient in one thing - transferring money from bad and naive traders/investors to the pockets of those that know what are they doing. You are now probably asking yourself “What am I doing in this field? Do I have any chance to succeed?” The answer is “Yes, you do.”. The system that we are about to reveal to you is a fail proof entry and exit strategy that will put you on equal level with big investment firms and with experienced professional traders.
A question that I hear the most from aspiring traders is “Which market should I trade? - Stocks, Futures, Commodities...?” Well, with the right attitude and dedication there is money to be made in every market. However, there is one market that is still largely neglected by smaller traders even though it offers great profit potential and numerous trading opportunities. It is Forex or Foreign Exchange market. 
1.1. Why should you trade forex market? 
Simply said, no other trading instrument comes even closely to forex market when it comes to liquidity, 24hr market environment and last but not the least, profit potential. Forex (currency) market is the largest (most liquid) financial market in the world, with an average daily volume of more than US$ 1.5 trillion, which is more than all of the global equity markets combined.
Forex trading day starts in Wellington, New Zealand followed by Sydney, Australia, Hong Kong and Singapore. Three hours later trading day begins in Dubai (UAE) and other Middle Eastern countries. In couple of hours they are followed by Frankfurt, Zurich, Paris, Rome… London is the last one to open in Europe and five hours later it is followed by New York, Chicago and finally the West Coast. The busiest hours are early European mornings because at that time major Asian exchanges are still open and European afternoons because at that time major US markets are open at the same time as Europe. Therefore, wherever you live and whatever your work hours are you can always find 4
some time to participate in forex trading as opposed to stock market where you are usually limited to the regular business hours.
Another property of forex market that makes it an excellent trading instrument is use of leverage. Many beginning traders don’t fully understand the concept of leverage. Basically, if you have a start up capital of $5,000 and if you trade on a 1:50 margin you can effectively control a capital of $250,000. However, a two percent move against you and your capital is completely wiped out. If you are a beginning trader you should not use more than 1:20 margin until you get comfortable and profitable and then and only then you can attempt to use higher margins. What does 1:20 margin mean? It means that with your $5,000 you will control a capital of $100,000. Let’s say you are trading EUR/USD and by using our entry strategy you have decided to enter the trade on a long side. That means that you are betting that USD will depreciate against Euro. Let’s say current EUR/USD rate is 1.305. Again, if your trading capital is $5,000 and you are using 1:20 leverage you will effectively be exchanging $100,000 to Euros. If the current rate is 1.305 you will receive 100,000/1.305 = 76,628 Euros. If the trade goes in your direction the margin will work in your favour and 1% decline in USD will mean 20% increase in your start up capital. So if EUR/USD rate moves from 1.305 to 1.318 you will be able to exchange your 76,628 Euros back to $101,000 for a profit of $1,000. Since your start up capital was $5,000 it is effectively a 20% increase in your account. However, if the trade went against you and USD appreciated 1% vs. Euro your account would be reduced to $4,000. That would not have happened as our strategy has built in hard stops to prevent such outcome.
And the third and equally important property of forex market is the fact that trends in forex market last longer and are more clearly defined than in any other trading instrument. 
1.2. Which strategy should you use?
Another question that is often asked by aspiring traders is “What kind of trading approach should I use – day trading, swing trading, position trading? How many indicators should I use? Should I follow the TV news channels?...” 5
If you are facing similar dilemmas let me try to make an analogy. If you were attacked in a dark alley and you felt that your life was in real danger what kind of defence technique would you attempt to use. Would you attempt to kick your assailant with some fancy kung fu move that you saw in a movie? Or would you use some basic but brutally effective “knee to the groin”, “thumb to the eye” technique that is easy to implement and that you are 100% certain will have an effect? When you have your hard earned money riding on your trades maybe your life is not at stake but your and your family’s livelihood is. The goal of all the other traders in the market is to take your money. And if you are going to play around with some fancy tools and indicators that you don’t even understand you can be assured that your hard earned money will be paying someone’s BMW lease payments.
If you want to get to the top of the forex market “food chain” you have come to the right place. The strategy that we are about to reveal to you is a completely new, efficient and reliable trading strategy that comes as the result of years of forex market research using sophisticated mathematical methods and is based on a fundamental property of financial markets.
1.3. The ICWR phenomenon
Regardless of how strong a long-term market trend is, the market never moves only in the direction of the long-term trend – there are always minor movements against the long-term market trend. These deviations usually don’t last very long and after them the market moves again in the direction of the long-term trend. The major market movements in the direction of the long-term market trend are called impulsive waves and the minor market movements against the long-term market trend are called corrective waves.
The picture below (Figure 1.1) shows a snapshot of a EUR/USD candlestick chart. Although the market shows both upward and downward market movements it can be easily recognized that the long-term market trend is clearly bearish as between 07:00 AM 6
and 11:00 AM the price failed around 140 pips (from 1.3500 at 07:00 AM to 1.3360 at 11:00 AM, that is 1.3500 - 1.3360 = 0.0140 = 140 pips). The waves (1), (3) and (5) are the impulsive waves; the waves (2) and (4) are the corrective ones.
Figure 1.1.
Our main observation, until now disregarded by all traders in their trading strategies, is that when putting into relationship the height of a corrective wave and the height of the prior impulsive wave, the corrective wave tends to retrace the prior impulsive wave in Fibonacci ratios. Frequent relationships are 25%, 38%, 50%, 61% and 75%. Up to now we will refer to this effect as the Impulsive/Corrective Wave Retracement (ICWR) phenomenon. For example in the picture below (Figure 1.2) the corrective wave (2) retraces the impulsive wave (1) in the Fibonacci ratio of 0.382. 7
Figure 1.2.
The ICWR phenomenon is a typical self-similarity effect of a complex system. For all kind of complex systems in nature as social, chemical or physical systems such self-similarity effects can be found. Self-similarity is a fundamental property of self-organized complex systems and is a matter of recent intense investigation by physicists and mathematicians.
We have used the phenomenon described above as a starting point to develop a completely original and until now unpublished trading strategy that combines basic principles of Elliot Wave theory together with well-known properties of Fibonacci ratios. The result is amazing, as you will soon find out. We have named the strategy “Impulsive/Corrective Wave Retracement (ICWR) Trading Rules”.
1.4. Simplified trading example
Before going into the details of our strategy we will introduce it to you by showing you a simplified, shortened version and in the later chapters you will be shown how to put it to use and immediately start taking advantage of it. Our strategy gives the best possible entry as well as exit moment. In the example below we will show you only the part that is usually neglected by most of the trading strategies currently in use – how to find out the 8
best moment to exit the trade. For the purpose of making the example easier to follow we will assume that we have already found the best moment to enter the trade. While going through the trading example below you will realize that the part of our strategy related with the exit signal follows the fundamental trading rule “cut the losses short and let the profits run” - in a way that was never accomplished before.
And, why is this fundamental trading rule so important? Because not letting the profits run will make your trading unprofitable in the long run: two losses of 50 pips followed by a win of 80 pips results in a net loss of 20 pips. In contrast two losses of 50 pips followed by a win of 250 pips, reachable with our strategy, results in a net win of 150 pips! I’m sure you get the point.
Here is an example of a GBP/USD trade exit by using our strategy. Note: All of the elements of the strategy are clearly explained in the later chapters. The purpose of the example below is to give you a glimpse into the exit part of the strategy. Suppose we entered the market short at point A (07:00 AM, 01/04/05) buying 10,000 USD at the entry price of 1.9075 (see Figure 1.3). 9
Figure 1.3.
For the first moment (see Figure 1.4) the market moved into our direction and reached the point B. At that point the market reached a value of 1.9028. That means 48 pips in our direction. So far, so good.
Figure 1.4.
However, after the point B (see Figure 1.5) the market starts an upward movement. What to do now? Inexperienced trader would close the position as a scared rabbit, happy to take 10
even small profit from the trade. But this would be the wrong decision. Why? Remember, we have to “let the profits run”, if we want to make trading profitable in the long run.
Figure 1.5.
So what do we do?
The essential question is:
When do we decide that our trade has run out of steam and should be exited? This is where our strategy comes into play. By using the “Impulsive/Corrective Wave Retracement Trading Rules” we will find the best possible time to exit the trade and extract maximum profit from each trade.
In order to apply our trading strategy the following trading setup has to be done. First of all the highest and the lowest value of the downward movement are determined. For this purpose we draw a line connecting both extreme values. In our case the extreme values of the downward movement are point A (around 07:00) and point B (around 08:00). We will connect them with the thick blue line (see Figure 1.6). 11
Figure 1.6.
Further on we draw the Fibonacci levels using the lowest value of the downward movement (point B) as the starting point (level 0.000) and the highest value of the downward movement (point A) as the ending point (level 1.000). As we are only interested in the 0.000, 0.250, 0.382, 0.618, 0.750 and 1.000 levels, only these levels will be drawn (see Figure 1.7).
We are going to exit the position only in the case that the price goes beyond the 0.750 level, i.e. if it happens that a whole candlestick is above the 0.750 Fibonacci level.
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Figure 1.7.
The upward movement retraced at the 0.618 Fibonacci level approximately at the point C at 08:50 AM. As the price didn’t move beyond the 0.750 Fibonacci level we remain in the trade. Ok, let’s look what happens next. After point C the market moves again downwards in our direction until it reaches a low point around 11:10 at the point D. After that the price starts to rise again (see Figure 1.8). Nevertheless letting the profit run did pay off, as the distance to our entry point is already around 100 pips (at point B the distance was only around 50 pips).
Figure 1.8.
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Again it is the “Impulsive/Corrective Wave Retracement Trading Rules”, which are helping us decide whether to remain in the trade or not. Again the trading setup is done: a line is drawn connecting the extreme values (C-D) of the downward movement and based on this line the Fibonacci levels are drawn (see Figure 1.9). And again: we are only going to exit the position if the price goes beyond the 0.750 Fibonacci level.
Figure 1.9.
The upward movement retraced at the 0.618 Fibonacci level approximately at point E at 12:25 AM. As the price didn’t move beyond the 0.750 Fibonacci level we remain in the market. Let’s look what happens next. After point E the market moves again downwards in our direction until it reaches a low point around 14:25 at the point F. After that, again the price starts to rise (see Figure 1.10). The distance to our entry point is now around 120 pips.
Again we set our trading setup: a line is drawn connecting the extreme values (E-F) of the downward movement and based on this line the Fibonacci levels are drawn. Remember, we are only going to exit the position if the price goes beyond the 0.750 Fibonacci level. 14
Figure 1.10. The upward movement retraced at the 0.750 Fibonacci level approximately at point G at 14:40. As the price didn’t move beyond the 0.750 Fibonacci level we remain in the market. Let’s look what happens next. After point G the market moves again downwards in our direction until it reaches a minimum around 17:30 at the point H. After that, again the price starts to rise (see Figure 1.11). The distance to our entry point is now around 200 pips.
Again we set our trading setup: a line is drawn connecting the extreme values (G-H) of the downward movement and based on this line the Fibonacci levels are drawn. Remember, we are only going to exit the position if the price goes beyond the 0.750 Fibonacci level.
Figure 1.11.
The upward movement retraced at the 0.250 Fibonacci level approximately at point I at 20:25. As the price didn’t move beyond the 0.750 Fibonacci level we stayed in the market. Ok, let’s look what happens next. After point I the market moves again 15
downwards in our direction till it reaches a minimum around 20:40 at the point J. After that, again the price starts to rise (see Figure 1.12). The distance to our entry point is now around 270 pips.
Again we set our trading setup: a line is drawn connecting the extreme values (I-J) of the downward movement and based on this line the Fibonacci levels are drawn. Exit signal occurs if the price breaks the 0.750 level.
Figure 1.12. After 21:00 the market trend starts to turn bullish. As of 01:15 the price has gone beyond the 0.750 level (the whole candlestick is above the 0.750 level at point K) we exit the trade selling 10,000 USD at the price of 1.8838 (see Figure 1.13).
Figure 1.13.
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For this trade a profit of 1.9075 - 1.8838 = 0.0237= 237 pips was realized. Using a leverage of 1:20 it means a profit of 10,000 x 0.0237 x 20 = 4,740 USD. That means a profit of 4,740 USD after one trading day!
Figure 1.14.
As you can see from the Figure 1.14 above our exit strategy was able to determine the best possible time to exit the trade and extract maximum profit from it. In order to show you how efficient our strategy actually is, we will compare the result we achieved with the result we would have achieved if we had used a trailing stop instead. 17
Figure 1.15.
As you can observe from the Figure 1.15 above after entering the position the market was clearly going in our direction (at the point D a profit spread of almost 150 pips was already reached). However, the trailing stop doesn’t give the trade enough space to run. If we would have used a trailing stop to exit the trade we would have achieved a profit of only 90 pips and our trade would have finished too early. Instead, using our strategy a profit of 237 pips – almost three times more – is achieved!
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