Thesis
Bollinger-reversion applies a textbook mean-reversion thesis to a 24-stock universe of large-cap US equities spanning technology, financials, healthcare, consumer staples, energy, and industrials. The rule is clean: buy when price closes below the lower Bollinger Band — a signal of statistically extended oversold conditions — and sell when price recovers to or above the upper band. No external signals, no macro overlays, pure price history.
Backtest Performance
Over 451 trading days, the strategy returned 17.55% (9.46% annualised CAGR) with a Sharpe ratio of 0.66, a win rate of 63.89% across 76 trades, and a maximum drawdown of 20.57%. A majority of trades closing green is a meaningful baseline for a rules-based system with no predictive features.
One number demands attention: annual turnover of 1,720%. The strategy cycles aggressively through its universe, making it sensitive to execution quality and regime shifts. Flat $1-per-trade fees kept friction low in simulation, but real-world slippage at this cadence warrants monitoring.
Validation: The Flag
The walk-forward validation is where the picture becomes complicated. All four folds finished positive — genuinely encouraging — but the trend is unambiguously downward:
| 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% |
The most recent out-of-sample period returned just 0.4% with a Sharpe of 0.14 — statistically indistinguishable from flat after risk. The Probabilistic Sharpe Ratio (PSR) of 0.814 provides moderate confidence the true Sharpe is above zero, but the Deflated Sharpe Ratio (DSR) of 0.342 — which corrects for testing across 6 trial configurations — suggests the measured edge does not comfortably survive a multiple-comparison penalty. Validation status: failed.
Recent Activity
The last week has been operationally quiet, with rejected signals on June 8, 11, 12, and 15 — no entries met the band-touch threshold. The two most recent executions were, however, clean illustrations of the thesis working: PG was bought June 1 at $140.03 and sold June 9 at $148.40, a ~6% gain in eight days. DIS was added June 10 at $99.18, joining existing positions in WMT ($115.75) and COST ($956.32) initiated May 31. Portfolio equity has held in the $10,100–$10,265 range over the past week.
Strengths and Risks
Strengths: A 63.9% win rate across 76 trades carries real statistical weight. Every walk-forward fold was profitable, and the PG round-trip demonstrated the core thesis executing as designed. For a parameter-light, interpretable system, that consistency has value.
Risks: Performance has decayed with each successive fold — from Sharpe 1.78 in fold 1 to 0.14 in fold 4. That is not noise; it is a pattern. The DSR below 0.5, combined with 6 trials, raises a legitimate overfitting concern. High turnover also means the strategy goes quiet — as the recent rejected-run streak shows — whenever the market trends without touching the bands.
Bollinger-reversion is worth monitoring at current allocation, but scaling would require either a market-regime filter to reduce false entries in trending conditions, or further parameter refinement with a clean out-of-sample window.