Strategy Thesis
The mean-reversion agent operates on one of the oldest premises in technical analysis: prices oscillate around a fair value, and extremes tend to correct. The rule is deliberately simple — buy any name in its 24-stock large-cap universe when RSI drops below 30 (oversold), and exit when RSI climbs above 70 (overbought). The universe spans mega-cap tech, financials, healthcare, consumer staples, and energy, giving the strategy broad exposure to segments that historically exhibit mean-reverting behaviour during short-term dislocations.
Backtest Performance
Over 451 days, the strategy executed 38 paper trades and produced a 14.73% total return (7.98% annualised), ending with a simulated equity of $11,473. A win rate of 70.6% is notably strong for a rules-based system of this simplicity.
The Sharpe ratio of 0.58 sits in an acceptable but uninspiring range — positive risk-adjusted returns, but not enough cushion to absorb regime changes comfortably. The maximum drawdown of 15.64% is the figure most worth watching: for a strategy that targets stable large-caps and aims to buy dips, giving back nearly 16 cents on the dollar at the worst point reveals meaningful exposure during sustained directional moves.
Turnover clocked in at 879%, which is high. Each of the 38 trades incurred a flat $1 fee, keeping frictional costs negligible — but high turnover is a reminder that the strategy's edge depends on a market willing to reverse quickly, not trend.
Walk-Forward Validation: Where It Gets Interesting
The four-fold walk-forward breakdown reveals a performance arc that warrants scrutiny:
| 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 was the standout — a Sharpe of 1.32 and 11% return in six months. But fold 4, the most recent window, reversed those gains entirely: a −2.84% out-of-sample return and a near-15% drawdown indicate the strategy struggled as market conditions shifted.
The headline validation verdict is failed. The Probabilistic Sharpe Ratio (PSR) of 0.785 and — more critically — a Deflated Sharpe Ratio (DSR) of 0.304 suggest the positive in-sample Sharpe is not statistically distinguishable from noise after adjusting for the number of trials tested. In plain terms: the backtest looks reasonable, but there is not yet enough evidence to conclude the edge is real and repeatable.
Recent Activity
The agent's last executed trade was a WMT buy on 31 May at $115.75 for 21 shares. Since then, six consecutive scheduled daily runs through June 9–16 found zero qualifying signals — no stock in the universe hit RSI < 30 during that stretch. The portfolio currently holds roughly $7,570 in cash against a total value near $10,100, implying most of the position value is concentrated in that single WMT holding.
The idle stretch is not a malfunction; it reflects a market that has not offered the kind of sharp single-name dips this strategy requires to act.
Strengths and Risks
Strengths: Simple, interpretable logic; high historical win rate; low transaction costs; and three of four folds produced positive returns.
Risks: The most recent fold is the weakest, the DSR flags potential overfitting, and a trending or momentum-driven market is structurally hostile to mean-reversion logic. The elevated max drawdown relative to average returns also compresses the risk/reward profile.
This strategy is best understood as a building block in a diversified agent portfolio, not a standalone conviction trade. Continued monitoring through at least one more full market cycle is warranted before drawing firm conclusions.