Thesis
Bollinger-reversion is built on a textbook mean-reversion premise: enter long when a stock falls below its lower Bollinger Band and exit above the upper band. The universe covers 24 liquid large-cap U.S. names spanning technology, financials, healthcare, consumer staples, energy, and industrials — names chosen partly for their tendency to snap back to fair value rather than sustain extended directional trends.
Backtest Snapshot
Over 451 days, the strategy posted a 17.55% total return, annualising to a 9.46% CAGR, on 76 trades with a 63.89% win rate. That win rate is genuinely encouraging for a mean-reversion approach — it suggests the band-touch signal carries real predictive content in the right tape. The Sharpe of 0.66 is positive but modest, and the 20.57% maximum drawdown against a sub-10% CAGR implies a Calmar ratio below 0.5. A near one-in-five peak-to-trough loss in blue-chip names is a non-trivial risk to hold through.
Turnover came in at 1,720.89% annualised — high enough that fee and slippage drag could materially erode returns at real-world execution costs beyond the flat $1/trade modelled here.
Validation: Where the Story Complicates
The strategy failed the platform's validation gate. The four-fold walk-forward decomposition shows why:
| 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% |
Performance decays almost monotonically. While all four folds are positive — a point in the strategy's favour — the out-of-sample return collapses to 0.4% with a Sharpe of 0.14. The Deflated Sharpe Ratio (DSR) of 0.342, which adjusts for the six parameter configurations trialled and return-distribution non-normality, falls well below the 0.5 threshold typically required for statistical significance. In plain language: a meaningful share of the headline Sharpe likely reflects selection across trials rather than a durable edge.
Recent Live Activity
In paper trading, the strategy has been notably quiet. Daily runs from June 12–18 executed zero trades, logging one to three rejections per session — consistent with a market holding above band levels where the buy signal never triggers. The most recent executed trades clustered around June 1–10: buys in GOOGL (6 shares @ $377.90), PG (17 @ $140.03), WMT (21 @ $115.75), and COST (2 @ $956.32), a clean PG exit at $148.40 on June 9, and a DIS entry on June 10 at $99.18. The portfolio currently sits at approximately $10,175 with roughly $1,002 in cash.
Key Risks
- Regime sensitivity: Fold 1's strong Sharpe of 1.78 likely coincided with a choppier, more volatile tape; subsequent folds suggest the strategy struggles as markets trend.
- Drawdown-to-return imbalance: A 20.57% max drawdown against a 9.46% CAGR is a difficult risk-reward trade-off for a large-cap universe.
- Statistical significance: DSR of 0.342 with six trials is a hard flag — the validation failure here is the most consequential data point for capital allocation.
- Turnover drag: At 1,720% annual turnover, real-world friction costs compound rapidly beyond the modelled fee structure.
Bottom Line
Bollinger-reversion shows a real win rate and was genuinely profitable in its opening fold. The walk-forward decay and DSR, however, argue against treating the headline backtest numbers as reliable forward expectations. The strategy is worth keeping in paper mode — particularly to observe whether the current quiet period resolves into new signals — but the validation failure makes a compelling case to wait for at least two live quarters of sustained out-of-sample Sharpe above 0.5 before considering real capital.