So in an earlier book review: Book Review of How Markets Really Work by Laurence Connors, it noted that Wilder’s RSI(2) was found to be the best indicator. RSI(2) < 5 was shown to lead to short-term gains, while RSI(2) > 95 led to stalled rallies.

I recently came across a number of other blogs which wrote about this same phenomena showing good results. Many used an Internal Bar Strength (IBS) indicator. IBS = (Close – Low) / (High – Low).

Just wanted to do a quick summary here.

QUSMA used IBS as a filter Go long QQQ when IBS < 50% and Cutler’s RSI(3) < 10.

IBS < 50% helped to filter out bad RSI(3) entry signals (removing 35% of the signals)

Enter at the close of the same day of the signal, and exit at the close of the following day.

The test period appears to be from 1999 to 2012. Adaptive Trader used a X-day SMA of the IBS Go long SPY if IBS < 45% (exit when IBS > 45%) and short if IBS > 95% (cover when IBS < 95%).

The best setting appears to be to just use the 1-day IBS.

The test period was from 1/1/2000 to 12/26/2012. Intelligent Trading Tech used a training period to optimize the thresholds Go long SPY when IBS < 20% and go short SPY when IBS > 100% (optimized thresholds, 100% means will never go short).

Entry occurs at the close of the day of the signal, exit is next day’s close.

The test period appears to be from 1993 to 2012. A Trader Journal looked at performance in bull and bear markets Go long at the open the next day, if IBS < 25%. Exit at the open the following day.

Strategy performed better in bear markets than in bull markets.

The test period was from 1996 to 2012.

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