Thesis
Bollinger Reversion is a textbook mean-reversion system: enter long when price closes below the lower Bollinger Band, exit when price tags the upper band. The universe is 24 large-cap U.S. names spanning tech (AAPL, MSFT, NVDA, GOOGL), financials (JPM, BAC, V, MA), healthcare (JNJ, UNH, PFE, ABBV), consumer staples and discretionary (PG, KO, WMT, COST, MCD, NKE, HD, DIS), and energy/industrials (XOM, CVX, CAT, HON). The thesis is structurally sound — blue-chip names with deep liquidity tend to snap back after technically-driven dislocations — but the validation data introduces meaningful caveats.
Backtest Performance
Over 451 days, the strategy completed 76 round-trips and returned 17.55% (9.46% CAGR), with a Sharpe of 0.66 and a win rate of 63.89%. On the surface these are encouraging numbers. The max drawdown of 20.57% is the main blemish — a drawdown nearly as large as the full-period gain implies meaningful underwater periods. High turnover (1,720% annualised) and $1 per trade in fees produced a total cost of $76, negligible at this scale but worth monitoring as position sizes grow.
Validation: A Cautionary Read
The strategy did not pass Headmars' walk-forward gate, and the fold-by-fold breakdown explains why:
| 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% |
The decay is monotonic and steep. Fold 1 delivered a Sharpe of 1.78 — genuinely strong mean-reversion alpha. By fold 4, the same strategy barely moves the needle at +0.40% and a Sharpe of 0.14. The out-of-sample return lands at just 0.4%, making the headline 17.55% backtest figure look like it is front-loaded on a narrow window of favourable conditions. The Deflated Sharpe Ratio of 0.342 (well below a 0.50 pass threshold) and the relatively modest PSR of 0.814 — given six parameter trials — confirm that a healthy share of the backtest edge does not survive statistical deflation.
The most likely explanation: the early backtest period coincided with a macro environment particularly receptive to short-term reversion trades, and the strategy has not demonstrated it can sustain that edge as volatility regimes shift.
Recent Activity
Live paper-trading activity over the past two weeks reflects a quiet market for this signal. Six consecutive daily runs (June 16–23) produced zero executions, with two to three candidate signals rejected each session — indicating prices are not breaching band extremes by enough to trigger entries. The last executed trades clustered around late May and early June: entries into WMT, COST, GOOGL, and PG, followed by a quick exit on PG eight days later at $148.40 versus a $140.03 cost basis, a clean ~5.98% gain consistent with the strategy's design.
Outlook
Bollinger Reversion earns credit for positive returns across all four walk-forward folds and a win rate above 60%. The risks are real: severe performance decay, a max drawdown that rivals total gains, and out-of-sample numbers that are essentially flat. It remains live in paper-trading mode — the right setting until the strategy either stabilises its fold-over-fold metrics or demonstrates that a parameter refinement can restore the Sharpe seen in its earliest period.