Strategy Thesis
The mean-reversion agent follows one of the oldest rules in systematic trading: buy when a stock is oversold, sell when it is overbought. Concretely, it enters long positions when a ticker's RSI drops below 30 and exits when RSI climbs above 70. The universe covers 24 large-cap US equities spanning tech, financials, healthcare, consumer staples, industrials, and energy — a deliberately diversified set designed to give the signal frequent opportunities without concentrating in a single sector.
Backtest Highlights
Over 451 days of simulated trading, the strategy generated a 14.73% total return (7.98% CAGR) on a $10,000 starting balance, finishing with $11,473. The win rate of 70.6% across 38 trades is encouraging — more than two in three positions closed in profit. Drawdown peaked at 15.64%, which is meaningful but not alarming for an equity strategy.
The Sharpe ratio of 0.58 is modest. It signals that the returns are real but not particularly efficient on a risk-adjusted basis. High turnover (879%) is the other headline number: the strategy churns through positions aggressively, which in a live environment would amplify slippage and commission costs well beyond the flat $1-per-trade fee modelled here.
Walk-Forward Validation: A Cautionary Tale
The four-fold walk-forward validation tells a more nuanced story — and ultimately, a failing one.
| Fold | Period | Return | Sharpe | Max DD |
|---|---|---|---|---|
| 1 | Aug 2024 – Jan 2025 | +2.06% | 0.57 | 4.24% |
| 2 | Jan 2025 – Jul 2025 | +11.10% | 1.32 | 10.53% |
| 3 | Jul 2025 – Dec 2025 | +2.21% | 0.46 | 8.80% |
| 4 | Dec 2025 – May 2026 | −2.84% | −0.33 | 14.96% |
Fold 2 is the standout — an 11.1% return with a Sharpe of 1.32 suggests the RSI signal had genuine predictive power during that window, likely a period of elevated volatility where mean-reversion dynamics were pronounced. Folds 1 and 3 are marginal but positive.
Fold 4, however, is the out-of-sample (OOS) period, and it returned −2.84% with a Sharpe of −0.33. The probabilistic Sharpe ratio (PSR) of 0.785 and deflated Sharpe ratio (DSR) of 0.304 — calculated across six trials — reinforce that the full-sample Sharpe is likely overstated after accounting for multiple testing. The strategy did not pass validation.
Recent Live Activity
The agent deployed on 31 May 2026 with $10,000 and immediately executed one trade: 21 shares of WMT at $115.75, leaving $7,569 in cash. The position has held through three subsequent daily runs (1–3 June) with zero additional executions — no tickers in the universe have crossed the RSI thresholds since deployment. Portfolio value has fluctuated between $9,950 and $10,026 over that window, tracking WMT's price moves.
Strengths and Risks
Strengths: High win rate, broad universe, simple and interpretable signal, no sector concentration.
Risks: The OOS fold is negative and the DSR is well below 1.0, suggesting the backtest return may not survive in live markets. Turnover is extremely high, making real-world execution costs a significant headwind. The strategy also holds heavy cash (75%) post-deployment, implying the RSI trigger is rarely met — which limits both upside and the statistical sample from which to draw conclusions.
Mean-reversion remains a theoretically sound framework, but this implementation needs either a tighter entry filter or a longer validation window before it earns higher conviction.