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.