Inspirations

The basis of the strategy is the IBS (Internal Bar Strength) indicator, used during strong uptrends. The strategy includes very effective and simple rules for opening and closing positions.

Key components

• Strong momentum. The essence of this strategy is the ability to detect a specific setup occurring during uptrends.

• IBS as a second factor. Internal Bar Strength is an important element of the Momentum IBS strategy. It helps identify patterns leading to price reversals and finds potential reversal points.

• Trading using Stockpicker method on 3 ETFs - SPY, QQQ, and VNQ.

The strategy includes two entry rules and one exit rule, and time Exit as an alternative.

Backtest 1 - Fixed $ Money Management

Invested capital: $100k

• Maximum number of open positions: 3

• Maximum investment per single position: $33.33k

• Test years: 31

• Tested period: 1995 - 2025

• Tested instrument: Group 3 ETFs (SPY, QQQ, and VNQ)

In this variant, we consistently invest the same amount, $100k, divided by the maximum number of open positions (3). This results in a capital commitment of up to $33.33k per position.

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 invest in a strategy that constantly uses 100% of the current capital (with an initial capital of $100k). 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 yellow line is a benchmark chart.

A red line is an Open Drawdown line.

Basic statistics resulting from the test:

Trading Strategy Analysis

Net Profit and CAGR

The net profit above $471k in the analyzed period is much lower than the benchmark (S&P 500 Index in the form of SPY ETF marked on the chart in yellow), which is now above $2M. This translates to a CAGR of 5.79% vs 10.89%. This means that the analyzed strategy achieved a lower net profit and a lower average annual return than the benchmark, although both returns increased compared to the previous test.

Drawdown and Return/Drawdown Ratio

The maximum open drawdown in the analyzed strategy was 19.4%, compared to 55.19% in the benchmark. Despite the higher drawdown than in previous results, the strategy remains significantly less risky and nearly doubles the return on invested capital, achieving a ratio of 9.3.

Exposure

The average exposure in the analyzed strategy was about 35% compared to 100% in the benchmark.

In the chart above, spanning 31 years, there are instances where exposure surpasses the total capital of $100k. How is this possible when the strategy is designed to allocate capital among up to three instruments, never exceeding the $100k limit? This occurs in rare cases when the strategy receives a signal to close a position on the same day it receives a signal to open a position on the same instrument. Consequently, in statistical terms, this transaction accumulates, but it should not affect actual trading.

In summary, relatively low exposure is a strong point of the strategy and makes it suitable for use in a portfolio with others. Using the Annualized return indicator, the exposure-adjusted return for the strategy is 16.7%, because the same capital can, in theory, be used multiple times by different strategies with a similar profile.

Winning Percent

The winning percentage in the analyzed strategy was about 69%.

At the same time, Avg. Win is only slightly worse than Avg. Loss, which, combined with win rate, makes the strategy effective.

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

The strategy has 1683 signals for the three ETFs it was created for.

Additionally, we tested the robustness by conducting nearly 190,000 trades (max open positions 40) for the period from 1995-2025 for all index stocks Nasdaq 100, S&P500, Russell 1000 and S&P 100 with %MM.

The results are as follows:

As can be seen, the strategy performed the weakest on small companies included in the Russell 1000, therefore, and also due to high spreads and slippage, they are not recommended.

This strategy has passed our parameter modification tests. We adhere to the principle that the fewer parameters, the greater the strategy's robustness. Therefore, we make efforts to ensure that our strategies have as few parameters as possible and to only select parameters that have a significant impact on the strategy's effectiveness while also aligning with its character.

Recommended Instruments

The recommended primary instrument for this strategy in Algocloud Stockpicker is a group of 3 ETFs (SPY, QQQ, VNQ). They have very good historical results despite trading relatively infrequently.

Pattern Day Trader

Historically, the strategy did not have any transactions that met the PDT criteria, so it can be successfully used on small accounts as well. You can read more about PDT here.

Summary & Strengths and Weaknesses

Strengths of the strategy:

• The strategy lets you tap into the potential of leveraged ETFs while keeping capital drawdowns at a level that is easier to accept psychologically than a simple buy‑and‑hold approach.

• A high share of profitable trades makes the equity curve relatively smooth, which helps reduce emotional swings and makes it easier to stick to the plan during more demanding market phases.

• Dynamic rotation between the main ETFs based on momentum aims to keep capital allocated where the market currently rewards trends, while still leaving part of the funds available for other strategies or opportunities.

  
  

Weaknesses of the strategy:

• In periods when the market maintains a strong, persistent uptrend, the strategy may lag behind a pure buy‑and‑hold approach, which requires patience and a willingness to accept a more moderate but more controlled equity path.
  

Summary

Momentum IBS is a strategy characterized by relatively low market exposure and a high win rate, which makes it an attractive addition to a diversified investment portfolio. By focusing on three leveraged ETFs — SPY, QQQ, and VNQ — and applying a disciplined momentum‑based framework, it aims to deliver smooth profit growth with controlled risk. Clear, rule‑based entry and exit signals support robust performance across different market environments and make the system easy to follow in day‑to‑day practice.

What you receive in the package for this strategy:

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

• The SQX file is ready to use on platforms Algocloud and StrategyQuant.

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

• IBS indicator for TradingView.