XLP Trading Strategies: Trade the Consumer Staples Sector

XLP Trading Strategies focus on mean-reverting assets, such as the XLP ETF, using the Internal Bar Strength (IBS) indicator. The strategy involves entering trades based on specific criteria, including low IBS values from yesterday and today, as well as RSI(5) levels below 50, with exits triggered when today’s close exceeds yesterday’s high.

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:

XLP Trading Strategies

(This article was first published in January 2018. Thus, 5 years out of sample, and the strategy has performed worse than in sample.) 

In plain English, the strategy has the following trading rules:

Trading Rules

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Here is the equity curve:

Annual returns:

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 is invested around 13% of the time (see “exposure” in the image above.

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If you would like to have the Amibroker and Tradestation code for this strategy plus 70+ other free trading strategies published on this website, please click on this link:

Why is the IBS indicator useful for trading mean-reverting instruments?

Insights into why the IBS indicator is particularly beneficial for trading mean-reverting assets, such as XLP.

Which ETF does this trading strategy focus on?

Information about the specific ETF, XLP, that the trading strategy is tested on, and what it represents (consumer staples).

Can you explain the conditions for entering a trade in this strategy?

A breakdown of the criteria that must be met for entering a trade, including IBS values and RSI(5) levels.

What is the primary focus of XLP Trading Strategies?

The primary focus of XLP Trading Strategies is to trade mean-reverting assets, particularly utilizing the Internal Bar Strength (IBS) indicator.

How are trades entered in XLP Trading Strategies?

Trades in XLP Trading Strategies are entered based on specific criteria, including requirements for low IBS values from both yesterday and today, along with RSI(5) levels below 50. Entries occur on the close.

Which indicator is utilized in XLP Trading Strategies to identify mean-reverting assets?

XLP Trading Strategies utilize the Internal Bar Strength (IBS) indicator to identify mean-reverting assets.

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