# Using Internal Bar Strength as a Key Indicator for Trading Country ETFs

**Authors:** Aditya Pandey, Kunal Joshi  
**arXiv:** [2306.12434](https://arxiv.org/abs/2306.12434)  
**Date:** 2023-06-14  
**Summary page:** https://www.summarizepaper.com/en/paper/2306.12434v1/

## Key points

- The study by Aditya Pandey and Kunal Joshi focuses on using Internal Bar Strength (IBS) as a key indicator for trading country exchange-traded funds (ETFs).
- Historical price data analysis over a 10-year period led to the development of a profitable trading strategy based on Mean Reversion.
- IBS was found to be a valuable technical indicator for predicting short-term price movements in ETFs and a robust predictor of close-to-close returns on equity ETFs.
- A novel strategy involves combining ETFs in a basket and taking long or short positions based on maximum and minimum IBS values.
- Various modifications such as adjusting holding periods, number of held ETFs, and IBS calculation periods were explored to optimize performance.
- Comparative analysis showed that this approach outperformed threshold-based strategies due to its consistent time-in approach.
- Diversifying across multiple ETFs within the basket and recalculating signals daily helped mitigate the risk of over-reliance on any single ETF, with returns being averaged between them.
- Potential trading costs like commissions, borrow rates, and slippage could impact overall performance, especially on the short side. Real-world expenses may vary from calculated results.
- The study provides valuable insights into utilizing IBS for trading country ETFs through rigorous quantitative analysis and strategic refinement, enhancing understanding of market dynamics and offering practical implications for developing profitable trading strategies in the realm of exchange-traded funds.

## Summary

The study by Aditya Pandey and Kunal Joshi examines the effectiveness of using Internal Bar Strength (IBS) as a key indicator for trading country exchange-traded funds (ETFs). Through analyzing historical price data over a 10-year period, the researchers develop a profitable trading strategy based on the concept of Mean Reversion. The results demonstrate that IBS can serve as a valuable technical indicator for predicting short-term price movements in this basket of ETFs. Additionally, the analysis highlights IBS as a robust predictor of close-to-close returns on equity ETFs. A novel strategy is introduced where ETFs are combined in a basket and positions are taken long or short based on maximum and minimum IBS values. To optimize performance, various modifications such as adjusting holding periods, number of held ETFs, and IBS calculation periods are explored. Comparative analysis shows that this approach outperforms threshold-based strategies on multiple metrics due to its consistent time-in approach. Diversifying across multiple ETFs within the basket and recalculating signals daily mitigates the risk of over-reliance on any single ETF, with returns being averaged between them. However, it is important to note that potential trading costs such as commissions, borrow rates, and slippage could impact overall performance – particularly on the short side. While efforts have been made to account for these costs in calculating results, real-world expenses may vary. In conclusion, Pandey and Joshi's study provides valuable insights into utilizing IBS as an effective tool for trading country ETFs through rigorous quantitative analysis and strategic refinement. The research not only enhances understanding of market dynamics but also offers practical implications for developing profitable trading strategies in the realm of exchange-traded funds.