Strategy Thesis
Bollinger-reversion operates on one of the oldest mean-reversion premises in technical analysis: price extremes are temporary. The strategy buys any position in its 24-ticker universe when price closes below the lower Bollinger band and exits above the upper band. The universe spans mega-cap equities across tech (AAPL, MSFT, NVDA), financials (JPM, V, MA), healthcare (JNJ, UNH), consumer staples (PG, KO, WMT), and energy (XOM, CVX) — a deliberate tilt toward liquid, institutionally-traded names where band violations tend to be noise rather than structural breaks.
Recent Activity
The strategy deployed on May 31 with $10,000 in paper capital, immediately executing four buys: WMT (21 shares @ $115.75) and COST (2 shares @ $956.32) on day one, followed by GOOGL (6 shares @ $377.90) and PG (17 shares @ $140.03) on June 1. The June 1 scheduled run reported $9,942.15 total value against $1,008.70 remaining cash — a modest unrealized loss from initial deployment, consistent with the strategy entering positions during band compression events.
The reviewer approved the strategy at risk score 0, flagging it as a built-in hand-written rule, which means no AI authorship risk is embedded in the current logic.
Backtest Performance
Over 451 days and 76 trades, bollinger-reversion returned 17.55% (9.46% CAGR), with a win rate of 63.89% and a Sharpe of 0.66. Final equity on a $10,000 starting balance reached $11,755. Those headline numbers are respectable for a purely mechanical system with no position sizing optimization.
The drawback: maximum drawdown hit 20.57% — a meaningful figure for a strategy that relies on calm reversion rather than trend capture. High turnover (1,721%) and $76 in total fees (flat $1/trade) suggest the strategy is active but not hyperactive.
Walk-Forward Validation: The Red Flag
This is where the picture complicates. Walk-forward validation across four folds tells a clear decay story:
| Fold | Period | Return | Sharpe | Max DD |
|---|---|---|---|---|
| 1 | Aug 2024 – Jan 2025 | 7.67% | 1.78 | 7.06% |
| 2 | Jan 2025 – Jul 2025 | 1.42% | 0.25 | 20.56% |
| 3 | Jul 2025 – Dec 2025 | 0.77% | 0.20 | 6.66% |
| 4 | Dec 2025 – May 2026 | 0.40% | 0.14 | 11.19% |
All four folds are positive — a point in the strategy's favor — but the trend is unmistakable. Fold 1 delivered a Sharpe of 1.78 on 24 trades; by Fold 4, the same logic generated 0.14 on 20 trades. Out-of-sample return sits at 0.40% with an OOS Sharpe of 0.14.
The validation framework flagged this: passed = false. The Probabilistic Sharpe Ratio (PSR) of 0.814 is reasonable, but the Deflated Sharpe Ratio (DSR) of 0.342 — which penalizes for multiple trials (6 in this case) — is the key concern. With six parameter configurations tested, the in-sample Sharpe of 0.66 loses most of its statistical credibility once trial inflation is accounted for.
Assessment
Strengths: Clean, interpretable thesis; positive across all walk-forward folds; diversified liquid universe; low fee drag.
Risks: Significant performance decay in recent folds strongly suggests the edge was concentrated in the Aug 2024 – Jan 2025 volatility window. The Fold 2 drawdown of 20.56% on just 11 trades is a warning about position sizing under stress. DSR below 0.5 means the strategy has not yet demonstrated a statistically robust edge after accounting for the search process.
Bollinger-reversion is a sensible starting point — not a deploy-and-forget system. It merits live observation at small size while the recent fold's OOS performance accumulates more data.