Inspiration

The original strategy was used by Linda Raschke for intraday trading, but here we have an implementation that has successfully stood the test of time in stocks. The foundation of the strategy is the IBS (Internal Bar Strength) indicator, but the strategy includes a specific way of using this indicator and filters that increase its effectiveness.

Key Components

• Reversal in an uptrend. The essence of this strategy is the ability to detect specific pullbacks in an uptrend. The strategy utilizes typical market behavior in stocks for reversals and temporary pullbacks, expecting the trend to continue.

• IBS as the foundation. As the name suggests, Internal Bar Strength is a key element of the IBS Master strategy. It helps identify patterns leading to price reversals and finds potential reversal points. The IBS Master strategy includes additional conditions and filters that activate and deactivate based on certain conditions.

• The Stockpicker mechanism searches and automatically selects stocks that meet the entry criteria.

Backtest 1 - $ Money Management

In this variant, we invest a constant amount of $100k, which is divided by the maximum number of open positions (15). This results in a capital commitment of up to $6.7k per position.

• Invested capital: $100k

• Test period (years): 31

• Tested years: 1995-2025

• Tested Index: S&P 500

Equity chart for this test:

Basic statistics and results month by month:

In the table, we highlighted the moment when the strategy was published.

Click the button to see the latest backtest:

Backtest 2 - % Money Management

In this backtest, we are investing in a strategy that constantly uses 100% of the current capital (starting with $100k capital). This means that as the capital grows or decreases, the position value changes proportionally. The rest of the parameters remain unchanged.

The equity chart for this test looks as follows. The chart includes a benchmark line (yellow).

A red line on the chart is an Open Drawdown line.

Basic statistics resulting from the test:

Trading strategy analysis

Net Profit and CAGR

The net profit in the analyzed period was $5,099,394, compared with the benchmark's $2,389,309. This translates to a CAGR of 13.59% versus 10.93% for the benchmark. This shows that the strategy still clearly outperformed the benchmark over the long term.

Drawdown and Return/Drawdown Ratio

The max open drawdown in the analyzed strategy was 27.52% vs 55.19% in the benchmark, resulting in an improved Return/Open Drawdown ratio of 14.17 vs 5.76. Despite a slightly higher drawdown level in the new test, the strategy now delivers even better returns relative to risk, which confirms that it remains less risky and more stable than the benchmark when we account for the relationship between returns and drawdowns.

Exposure

The average exposure in the analyzed strategy was 64.65% vs 100% in the benchmark. The study was conducted on the underlying instrument, which is the S&P 500 index stocks. Exposure is measured by a dedicated study. The analyzed strategy used less capital on average and, therefore, was less exposed to market risk, with the remaining capital available for use in other strategies. You can read about exposure here.

Winning Percent

The winning percent in the analyzed strategy was 62.85%. This means that most of the transactions were profitable, highlighting the effectiveness of the strategy in generating positive results and giving the user greater confidence in the frequency of profit generation.

SL & TP

The strategy doesn't use a typical stop-loss and relies on an exit condition. But you can add an SL if it makes you more comfortable. Instead, diversifying positions within a single strategy and across the whole portfolio helps protect against the significant impact of a potential price change in one stock on the entire portfolio. Visit the stop loss order page.

Market Regime

The strategy was tested in all basic market regimes and includes filters implemented based on this. Read more about market regimes.

Trading Costs

Trading costs and slippage were taken into account in the backtests. You can check our last research about trading costs using Alpaca Broker here. With a diversified portfolio of stocks and strategies, transaction costs can determine your profit or loss, so take the time to thoroughly test and choose a broker.

Robustness

We tested the robustness by executing all possible stock transactions for the Nasdaq 100 and Russell 1000 indexes from 1995 to 2025. For the Nasdaq 100, we allowed a maximum of 40 open positions, resulting in 7,225 transactions. For the Russell 1000, we allowed up to 40 open positions, leading to 31,166 transactions at %MM.

This strategy passed our manual parameter modification tests. We believe that fewer parameters lead to greater robustness. Therefore, we strive to keep our strategies simple, using only parameters that significantly impact effectiveness and align with the strategy's character.

The results are as follows:

Recommended Instruments

The recommended primary instrument for this strategy in Algocloud Stockpicker is companies in the S&P 500 index, which have shown the best historical results. However, the strategy also performs well with stocks in the Nasdaq 100.

Pattern Day Trader

Statistically, the strategy closed about 11% of all trades on the same day (around 1,313 day trades out of more than 12,000 trades in the 1995–2025 backtest). Over this 31‑year sample there were 124 occurrences where the Pattern Day Trader (PDT) threshold was met. This clearly qualifies the strategy as a PDT‑sensitive system. In practice, traders should assume a real margin account of at least $25k for the whole portfolio or combine this system with less active strategies and carefully control total day‑trade activity so that the combined portfolio does not systematically exceed PDT limits. For more details on how we monitor and manage PDT risk in portfolios, see our Pattern Day Trader guide.

Correlation

Correlation analysis is used to align strategies with different profiles and reduce overlap in risk. By analyzing correlation, you can avoid duplicating risk within a portfolio and more effectively integrate systems operating under various conditions. You can learn more about correlation here.

Summary & Strengths and Weaknesses

Strengths of the strategy:

• The strategy consistently outperforms a simple buy-and-hold approach on a broad index, with a much smoother equity curve.

• It combines an attractive risk-reward ratio with controlled drawdowns, making it well-suited as a "workhorse" in a portfolio of systems.

• It requires only partial capital commitment, allowing it to be conveniently combined with other strategies in a single portfolio.

• It has passed robustness tests across multiple indices and parameter configurations, suggesting that it is based on a persistent market anomaly rather than fitting a single dataset.
  

Weaknesses of the strategy:

• The strategy is sensitive to the Pattern Day Trader rules – some trades are completed within the same session, so it requires a properly planned account, broker, and portfolio composition in terms of PDT limits.
  

Summary

IBS Master is a mature reversal equity strategy, designed as a stable pillar of a mechanical systems portfolio. In the long term, it shows a clear advantage over simply holding the index, while maintaining acceptable risk and the ability to combine with other approaches. Its main limitation remains its susceptibility to PDT rules, so it is best to treat it as a key element of a well-diversified, multi-strategy portfolio, rather than the sole source of market exposure.

What you receive in the package for this strategy:

• An eBook presenting detailed rules and results of the strategy.

• An SQX file ready to use on platforms like Algocloud and StrategyQuant.

• Pseudocode describing all rules in an easy-to-understand manner.

• IBS indicator for TradingView.