A blue title graphic featuring the white text "Quantified Strategies," "IBS Indicator Strategies," and the subtitle "That Exploit Short-Term Reversals," with a circular geometric background design and a vertical slider bar on the left.

2 IBS Indicator Strategies That Exploit Short-Term Reversals

ByOddmund Groette Trading strategies

2 IBS Indicator Strategies That Exploit Short-Term Reversals examines how a simple but little-known indicator can help identify short-term overbought and oversold conditions.

What Is The IBS Indicator?

IBS stands for Internal Bar Strength and measures where the closing price finishes within the day’s trading range. It is calculated as:

IBS = (Close − Low) / (High − Low)

The indicator ranges from 0 to 1. A low IBS reading means the market closed near the day’s low, while a high reading means it closed near the day’s high.

IBS is often used in mean-reversion strategies. A very low reading may indicate short-term weakness and a possible rebound, while a very high reading may signal that the market is temporarily stretched. In this article, we test two IBS indicator strategies to see whether these simple signals have produced a measurable trading edge.

2 IBS Indicator Strategies That Exploit Short-Term Reversals

We backtested the two strategies (the trading rules are at the bottom of the article):

This is the first strategy (both strategies were backtested on QQQ, the ETF that tracks Nasdaq 100):

Normalized IBS Strategy

A long-term financial backtest equity curve titled "Portfolio Equity = 43569.74," charting the performance of a normalized Internal Bar Strength strategy from 1998 to 2026. The black line graph shows steady capital accumulation from a baseline of 10,000 to over 43,000, featuring a QuantifiedStrategies.com watermark in the center.
Multi-year performance equity curve demonstrating the capital growth and drawdown resilience of a normalized approach within 2 IBS Indicator Strategies That Exploit Short-Term Reversals.

Performance

  • No. of trades: 185
  • Average gain per trade: 0.8%
  • Win ratio: 76%
  • Profit factor: 2.7
  • Annual returns (CAGR): 5.6%
  • Exposure/time in the market: 10%
  • Risk-adjusted return: 53% (CAGR divided by time spent in the market (0.1))
  • Max drawdown: 13% (buy and hold 82%)

IBS Strategy 2

A long-term financial backtest equity curve titled "Portfolio Equity = 256165.1," charting the performance of the second Internal Bar Strength strategy from 1998 to 2026. The black line graph demonstrates significant capital compounding from a baseline of 10,000 to over 256,000, featuring a QuantifiedStrategies.com watermark in the center.
Multi-year performance equity curve showcasing the capital accumulation and systemic resilience of a quantitative approach within 2 IBS Indicator Strategies That Exploit Short-Term Reversals.

Performance

  • No. of trades: 439
  • Average gain per trade: 0.8%
  • Win ratio: 70%
  • Profit factor: 2.1
  • Annual returns (CAGR): 12.5%
  • Exposure/time in the market: 38%
  • Risk-adjusted return: 32% (CAGR divided by time spent in the market (0.38))
  • Max drawdown: 45% (buy and hold 82%)

Trading Rules

Both strategies trade at the next day’s open. Below are the trading rules for the 2 strategies:

🔒 These trading rules are for members only.

Get access here

I’ve got an Msc from Heriot-Watt University, Edinburgh (1996), in addition a to a business administration degree the Norwegian School of Management (BI – 1994). Did my mandatory military service in between.

After university, I worked two years as an auditor (1996-1998).

I co-founded Aksjeforum.com in 1998/99 - one of the first websites about trading and investing in Norway. It was later acquired by Digi.no in 2001.

I have written 4 books about trading (in Norwegian). One of them has sold 30,000 copies, a record for a financial book in Norway.

From 2001 until 2018 full-time independent prop trader (Series 7 in 2001) and investor.

2018-today: Investor, writer, analyst.

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