Thesis
Bollinger Reversion is a classic mean-reversion play: buy when price closes below the lower Bollinger Band, sell when it rises above the upper band. The logic is intuitive — large-cap equities with strong fundamentals tend to revert after short-term dislocations driven by sentiment or macro noise. The strategy's 24-symbol universe leans heavily on that premise, targeting blue-chips across tech (AAPL, MSFT, NVDA, GOOGL), financials (JPM, BAC, V, MA), healthcare (JNJ, UNH, PFE, ABBV), and consumer staples (PG, KO, WMT, COST), among others.
Backtest Performance
Over 451 days, the strategy generated a 17.55% total return (9.46% CAGR) across 76 trades, with a 63.89% win rate and a maximum drawdown of 20.57%. On the surface, these are encouraging numbers. A win rate above 60% on a systematic rule is genuinely useful, and the CAGR is competitive for a rules-based strategy with no leverage.
The Sharpe ratio of 0.66 is the first note of caution. It's positive, but it sits well below the threshold (typically ≥1.0) that institutional benchmarks use as a baseline for capital allocation. The max drawdown of 20.57% — more than a full year's CAGR — means the strategy can and does experience painful troughs before recovering.
Walk-Forward Validation: The Core Concern
The validation results are where the picture shifts meaningfully. Across four folds, all four were positive — which is encouraging — but the trajectory is not:
| 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% |
Fold 1 was exceptional — a 1.78 Sharpe with only a 7% drawdown. Every subsequent fold shows declining returns and near-zero risk-adjusted performance. The out-of-sample (OOS) return of 0.4% and OOS Sharpe of 0.14 are consistent with a strategy whose in-sample results were heavily front-loaded. The Deflated Sharpe Ratio of 0.342 (with 6 trials evaluated) confirms that much of the apparent edge does not survive statistical adjustment for multiple testing. Validation status: failed.
Recent Live Activity
The live paper portfolio currently sits at approximately $10,060 on $1,001.98 cash. The most recent six scheduled runs (June 17–24) executed zero trades, with 2–3 signals rejected each day — suggesting the current market environment is not generating clean band-breach setups across the universe.
The last confirmed trades were in early June: a buy of 25 shares of DIS at $99.18, a sell of 17 shares of PG at $148.40 (closing a position opened at $140.03 on June 1 for a ~6% gain), and buys in GOOGL, WMT, and COST at end of May. The PG round-trip is a clean example of the thesis working as intended.
Strengths and Risks
Strengths: The strategy is mechanically simple, transparent, and battle-tested conceptually. A 63.89% win rate across 76 trades provides statistically meaningful signal. All four validation folds stayed positive.
Risks: The decay curve across folds is the dominant concern — it suggests the strategy may have been calibrated to a specific volatility regime (late 2024) that has since passed. A 20.57% max drawdown is substantial relative to annual returns. The recent run of zero executions also points to a tightening opportunity set in calmer markets.
Bottom line: Bollinger Reversion earns a "watch" status. The mechanism is sound, but the live edge appears to be narrowing. A regime filter or parameter re-calibration is worth exploring before committing additional paper capital.