The Thesis
Mean-reversion is one of the oldest systematic edges in equities: when a stock becomes technically oversold (RSI below 30), the strategy buys, expecting a snap-back; when it becomes overbought (RSI above 70), it exits. The universe is 24 large-cap and blue-chip names — AAPL, MSFT, NVDA, JPM, WMT, and peers — chosen for their liquidity and tendency to revert rather than trend for extended periods.
It is a deliberately simple signal. That simplicity is both the appeal and the vulnerability.
Backtest Performance
Over 451 days of in-sample history the strategy compounded to +14.73% (CAGR ~8.0%), finishing with simulated equity of $11,473 on a $10,000 starting base. The win rate of 70.6% across 38 trades is notably high for a systematic strategy, and the maximum drawdown of 15.64% is manageable given the return profile.
The Sharpe of 0.58 is modest — roughly what you'd expect from a slow-turning, low-leverage equity system. Turnover ran at 879% annualised, which sounds alarming but is consistent with short holding periods on an RSI reversion signal across a 24-stock universe.
What Walk-Forward Validation Reveals
The four-fold time-series cross-validation paints a more nuanced picture:
| 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 outlier that flatters the aggregate — a single strong period where the strategy caught genuine mean-reversions with Sharpe of 1.32. Strip that out, and the remaining three folds average a thin +0.5% with mediocre risk-adjusted returns.
Most critically, the out-of-sample (OOS) return is −2.84% with a Sharpe of −0.33. The Probabilistic Sharpe Ratio sits at 0.785 and the Deflated Sharpe Ratio falls to 0.304 after adjusting for the 6 trials run — well below the 0.95 threshold Headmars uses as a gate. Validation: failed.
Recent Live Activity
The strategy has been running daily since mid-June 2026 and has executed zero trades across six consecutive scheduled runs. The portfolio holds $7,569 in cash against a total value of roughly $10,030–$10,108, with the sole live position being 21 shares of WMT acquired at $115.75 on 31 May.
The silence is telling. In a broadly recovering large-cap market, few names in the universe are pushing RSI below 30 — the signal simply isn't triggering. That is not a bug; it is the strategy behaving correctly under prevailing conditions. But extended inactivity compounds the opportunity cost of idle cash.
Strengths and Risks
Strengths: High historical win rate, disciplined entry/exit rules, zero ambiguity in signal logic, and exposure limited to liquid blue-chips with low slippage risk.
Risks: The strategy is regime-dependent. It performs in choppy, mean-reverting markets and struggles when stocks trend persistently — as Fold 4 demonstrates. The negative OOS result in the most recent period is the most relevant data point for forward-looking deployment. The DSR of 0.30 suggests a material probability that the backtest Sharpe is not robust to multiple testing.
Outlook
Mean-reversion remains a legitimate systematic approach, but the current validation failure warrants caution before scaling capital. The next meaningful test will be whether Fold 4's deterioration continues into mid-2026 or reverts as market volatility picks up. For now, the strategy stays live on the paper-trading leaderboard — earning its keep through observation, not allocation.