Thesis
Bollinger Reversion applies a classic mean-reversion rule to a 24-name universe of large-cap US equities spanning technology, financials, healthcare, consumer staples, and energy. The logic is straightforward: buy when a stock closes below its lower Bollinger Band, sell when it closes above the upper band. The bet is that short-term price extremes in liquid blue-chip names are statistical noise rather than trend — and that prices revert to the mean.
Backtest Snapshot
Over 451 trading days, the strategy produced a 17.55% total return (CAGR ~9.46%), finishing with final equity of $11,755. The headline numbers carry real nuance:
| Metric | Value |
|---|---|
| Sharpe ratio | 0.66 |
| Max drawdown | 20.57% |
| Win rate | 63.89% |
| Total trades | 76 |
| Annual turnover | 1,720.89% |
The 63.89% win rate across 76 trades is a genuine positive — the directional call is right more often than not. However, a 20.57% maximum drawdown and an annual turnover of 1,720.89% flag meaningful execution risk. At $1 per-trade in fees the friction is modest at paper-trading scale; at real-world size, that turnover becomes a significant cost headwind.
Validation: The Fading Edge
The headline backtest return masks a more concerning picture. Walk-forward cross-validation across four chronological folds shows a sharp and consistent performance decay:
| 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's Sharpe of 1.78 is strong. By Fold 4 it has collapsed to 0.14 — barely distinguishable from noise. The out-of-sample return of 0.40% with an OOS Sharpe of 0.14 tells the same story. Critically, the Deflated Sharpe Ratio (DSR) of 0.342 — which corrects for the 6 parameter trials tested — means the statistical evidence that the full-period Sharpe is genuinely above zero is weak. The strategy has not passed validation and remains below the auto-deploy threshold.
Recent Activity
The strategy has been effectively idle since mid-June. Six consecutive daily runs from June 30 through July 7 recorded zero executed trades, with between one and three signals rejected each session. The most recent executions — buys in DIS ($99.18), GOOGL ($377.90), PG ($140.03), WMT ($115.75), and COST ($956.32) in late May and early June, followed by a PG sell at $148.40 — reflect the thesis working as intended when bands were breached. Portfolio value has ranged from $9,706 to $9,893 across recent sessions with $1,001.98 in cash.
Strengths and Risks
Strengths: The win rate and the fact that all four validation folds ended positive suggest the reversion thesis carries real signal in liquid large-caps. The universe is well-chosen: deep liquidity and fundamentally mean-reverting businesses support the contrarian approach.
Risks: The fold-by-fold decay is the central concern. Whether this reflects a regime shift — markets trending more than reverting in the post-2024 period — or partial overfitting to the early sample, the current OOS Sharpe offers little deployment confidence. High turnover amplifies cost sensitivity at scale. Until later-fold performance stabilizes, this strategy warrants close monitoring rather than live capital.