Using strength of recent closes to time broad asset classes
Back in November I posted a strategy for timing SPY using the strength of recent closes. I looked at the 4 day average of a closing strength ratio reffered to by some as internal bar strength or IBS (IBS = (close-low)/(high-low)). The equity curves were pretty impressive.
I’ve recently tested a couple related strategies. One idea involved a long/short approach to timing country stock ETFs. I found some strategies that appeared to work great for a while but have become less and less effective over time.
Another idea I recently tested goes long one or more broad asset ETFs based on average IBS.
Here’s a description of one implementation.
- Basket of ETFs includes SPY, EEM, GLD, TLT, VNQ.
- Near each day’s close, calculate the 4 day moving average of IBS and rank each ETF by this value.
- At each day’s close, buy equal shares of the 2 ETFs with the lowest average IBS. Sell positions 3 days later.
- At any given time the strategy will be holding 2-5 ETFs purchased on 3 different days.
- $100K invested per trade (split equally among the 2 ETFs being purchased).
Below is an equity curve before slippage and commissions and any dividends. Average trade is .28% with 58% winners.
I’ve tested out IBS moving averages between 1-7 days and it seems pretty robust. I’m sure there are ways to improve the strategy with either some kind of equity curve timing, stops, etc. It would also be interesting to try out other combinations of ETFs. This is the first such combo I’ve tried.