Short Mean Reversion with Internal Bar Strength

Summary

This document describes a short-only mean reversion strategy for daily stock and ETF trading, using Internal Bar Strength (IBS) to measure where the close falls within the day’s high-low range. It opens a short when IBS is at or above 0.9, the close is above the previous bar’s high, and the trade is within a specified time window. It closes positions when IBS falls to or below 0.3. Position sizing is described as a percentage of equity.

The document explains the logic and lists possible improvements, including trend filters, volume or volatility confirmation, adaptive thresholds, and stop losses. It warns that strong trends can cause repeated losses, IBS alone can produce false signals, and the described rules lack a stop-loss mechanism. Although the accompanying published backtest settings specify an hourly ETH market, the written strategy description says it is intended for daily stock and ETF use. No performance results are provided, so the settings do not establish its effectiveness.

Key ideas

• IBS measures the close’s position within the daily high-low range.
• A short entry requires high IBS, a close above the previous bar’s high, and an eligible trading time.
• The strategy exits when IBS reaches its lower threshold.
• Strong trends, false signals, and the absence of a stop loss are key risks.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.