What it is and how to use it
What is it?
The Internal Bar Strength (IBS) indicator measures the relative position of the closing price within the high-low range of the day. It is a bounded oscillator that ranges from 0 to 1, providing insights into the strength of a price movement within a single trading bar.
Who made it?
The concept of Internal Bar Strength is widely used among traders, though it does not have a single, well-documented originator like some other technical indicators. It has gained popularity due to its simplicity and effectiveness in various trading strategies.
How is it calculated?
IBS = (Close - Low) / (High - Low)
Where:
Close is the closing price of the bar.
Low is the lowest price of the bar.
High is the highest price of the bar.
Code (ProRealTime)
How do you use it?
You can use the IBS indicator in several ways to make trading decisions:
Overbought/Oversold Conditions:
An IBS value near 1 indicates that the closing price is near the high of the bar, suggesting overbought conditions. Conversely, an IBS value near 0 indicates that the closing price is near the low of the bar, suggesting oversold conditions.
Mean Reversion Trading:
A low IBS value (e.g., below 0.2) can signal a buy opportunity, expecting the price to revert to the mean. A high IBS value (e.g., above 0.8) can signal a sell opportunity, expecting the price to pull back.
Trend Confirmation:
IBS can also be used to confirm trends. In an uptrend, IBS values may consistently stay above 0.5, while in a downtrend, they may consistently stay below 0.5.
FAQ
Q: Is IBS a leading or lagging indicator?
A: IBS is a leading indicator. It measures the position of the closing price relative to the high and low of the bar, helping to identify potential reversals and trend continuations.
Q: How is IBS different from other technical indicators?
A: IBS is unique because it focuses on the relationship between the closing price and the bar's range, rather than just price or volume data. This makes it particularly useful for identifying short-term price reversals.
Q: What are the strengths and weaknesses of IBS?
A: The strength of IBS lies in its simplicity and effectiveness in identifying short-term reversals. However, its weakness is that it may generate false signals in highly volatile or trending markets without additional confirmation.
Strategies using the IBS indicator
None so far.
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