Strategy Thesis
Bollinger-reversion applies textbook mean-reversion logic to a focused universe of 24 large-cap U.S. equities spanning technology, financials, healthcare, consumer staples, energy, and industrials. The rule is mechanically clean: buy when price closes below the lower Bollinger band — a short-term oversold signal — and sell when it closes above the upper band. No discretionary override, no complex position sizing. The thesis is that blue-chip names with deep liquidity tend to snap back from short-term statistical extremes.
Backtest Performance
Over 451 days the strategy produced a 17.55% total return (9.46% annualized CAGR) across 76 trades, with a 63.89% win rate and a Sharpe ratio of 0.66. The maximum drawdown reached 20.57% — meaningful for a strategy targeting names like KO, PG, and JNJ that are not typically associated with violent swings. Fees totalled $76 (flat $1 per trade), a negligible drag. The more notable figure is turnover at 1,721% annualized; in a live account with real market impact, that level of churn would materially compress net returns.
Walk-Forward Validation: A Cautionary Read
The cross-validation picture is where this strategy's story gets complicated. Across four sequential folds, both returns and Sharpe ratios declined in near-linear fashion:
| Fold | Period | Return | Sharpe | Max DD |
|---|---|---|---|---|
| 1 | Aug 2024 – Jan 2025 | +7.67% | 1.78 | 7.06% |
| 2 | Jan – Jul 2025 | +1.42% | 0.25 | 20.56% |
| 3 | Jul – Dec 2025 | +0.77% | 0.20 | 6.66% |
| 4 | Dec 2025 – May 2026 | +0.40% | 0.14 | 11.19% |
All four folds remain profitable — a genuine positive. The strategy has not gone negative out-of-sample, and a Probabilistic Sharpe Ratio of 0.814 indicates an 81% probability that the true Sharpe is above zero. But the out-of-sample return of just 0.40% and OOS Sharpe of 0.14 are too thin to justify capital allocation. The Deflated Sharpe Ratio of 0.342 — adjusted for the six trials tested — falls well short of the 0.5 threshold that signals a statistically durable edge. The validation gate's fail verdict is the correct call.
The most likely explanation is regime sensitivity: Fold 1 coincides with a volatile, trend-reversing market period where mean-reversion logic thrives. Later folds show the edge evaporating as conditions shifted.
Recent Live Activity
The paper portfolio closed the week of June 9–12 near $10,170, off slightly from $10,206 on June 5. Signal generation has been sparse — only two executions across six scheduled daily runs. On June 10 the strategy bought 25 shares of DIS at $99.18; on June 9 it closed a PG long (17 shares at $148.40) that had been opened June 1 at $140.03, a clean +6.0% round-trip. One rejection each on June 8, 11, and 12 suggests current prices are not presenting meaningful band-breach setups across the universe.
Risk Factors
- Regime dependency: Fold 1's Sharpe of 1.78 likely reflects an unusually favorable reverting environment; the edge has not held up in calmer or trending periods.
- Drawdown profile: A 20%+ maximum drawdown alongside low single-digit recent returns is an unfavorable risk-reward ratio.
- Turnover drag: At 1,721% annualized, real-world slippage and commissions would significantly erode paper gains.
- Validation failure: The DSR gate is a hard stop — the strategy will not be promoted to live capital until statistical significance is demonstrated.
Outlook
Bollinger-reversion is a coherent approach with a positive win rate and no losing folds. The challenge is that mean-reversion in large-caps appears highly regime-dependent. A parameter sweep — tighter bands, longer lookback windows, or a VIX-regime filter to activate the strategy only in high-volatility environments — may recover a more durable edge. Until then, it continues accumulating data in paper mode, which is exactly where it belongs.