The internal bar strength is defined as follows: (close-low)/(high-low). This indicator is very useful on mean revertive trading instruments, like for example XLP.
This article contains a simple but quite effective trading strategy using the internal bar strength indicator:
The internal bar strength trading strategy
In plain English the strategy is like this:
- Yesterday’s IBS must be lower than 0.15.
- Today’s IBS must be lower than 0.4.
- RSI(5) today must be lower than 50.
- Entry on the close.
- Exit when today’s close is higher than yesterday’s high.
The strategy is tested on the ETF with the ticker code XLP, an ETF that tracks the major consumer staples.
Here is the equity curve:
2008 was actually by far the best year:
And here are all the trade details:
When testing for optimization there is a clear pattern that it’s best with a low IBS yesterday and a bit higher today.
Of course, the annual return is pretty low, but that is because the strategy spends most of the time on the sidelines. The strategy spends about 505 days in the market over this period, only around 16% of the trading days.
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