The idea
Internal bar strength measures where a day closed within its range: (close minus low) divided by (high minus low). A value near 0 means the day closed at its low; near 1, at its high.
The IBS strategy buys broad stock indices after a weak close, IBS under 0.2, as long as the market is above its 200-day average, and sells on the first strong close, IBS above 0.8, or a close above the previous day's high. Trades usually last a day or two.
Watch it play out
Step by step
The rules
Setup
- Daily chart of a broad index or index ETF, above its 200-day average.
Entry
- Buy at the close when IBS is under 0.2.
Stop-loss
- Usually none in the published versions; a time stop of a few days, or a stop of 2 ATR, limits the worst case.
Target
- Sell at the first close with IBS above 0.8, or above the previous day's high.
Filters that help
- Avoid single stocks, which can keep falling on news.
- Some versions require two weak closes in a row.
Why it can work
Broad indices have tended to bounce after days that close at their lows, as late-day selling pressure is absorbed overnight. The long-term filter limits the strategy to markets in uptrends, where dips have more often been bought.
A close at the bottom of the range often comes from sellers rushing to finish before the end of the day, rather than from new information. When that selling is done, the next session has fewer sellers left, and in a rising market the dip tends to be bought. The 200-day filter keeps the strategy out of markets where dips have kept going.
Worked example
An index ETF trading between $114.92 and $116.30 for the day closes at $115.00: IBS = (115.00 − 114.92) / (116.30 − 114.92) = 0.06. It is above its 200-day average, so you buy at the close.
Two days later it closes near the top of its range: sell at that close.
When it works, when it fails
Works best
In broad, liquid stock indices during long bull markets.
Struggles
In bear markets that begin inside an uptrend, and on single stocks. With no stop in the basic rules, a crash turns small dips into large losses.
Common mistakes
- Running it on individual stocks or crypto without testing.
- Ignoring costs: trades are frequent and gains per trade small.
- Removing the 200-day filter after a strong year.
Variations
- IBS with RSI
- Requiring both a low IBS and a low 2-period RSI, for fewer and deeper dips.
What the evidence says
Evidence: Popular, untestedWidely used, but no rigorous public testing. An idea to test yourself.
Weak closes followed by bounces in stock indices are a pattern often shown in public backtests, and IBS is a popular filter in short-term index strategies. We know of no rigorous peer-reviewed study of these exact rules after costs.
Short-term index reversal strategies have also weakened in recent years in several public tests, so test it on recent data.
Questions
- What IBS level counts as weak?
- The common threshold is under 0.2, a close in the bottom fifth of the day's range. Stricter versions use 0.1, which gives fewer, deeper signals.
- How long are IBS trades held?
- Usually one to three days. The exit comes on the first strong close, so most trades are short, and the strategy spends little time in the market.
- How is internal bar strength calculated?
- IBS = (close − low) / (high − low) for the day. 0 means the close was the low, 1 means it was the high.
- Why only above the 200-day average?
- To buy dips in uptrends, where they have more often been bought back, and avoid catching falling markets.
- Does IBS work on single stocks?
- It is mostly shown on broad indices. Single stocks carry news risk and often keep falling, so results differ a lot.