Thesis
The mean-reversion strategy operates on a straightforward premise: large-cap equities revert to their mean after short-term extremes. It buys when RSI drops below 30 (oversold) and sells when RSI climbs above 70 (overbought). The universe spans 24 blue-chip names across tech, financials, healthcare, consumer staples, energy, and industrials — household names like AAPL, NVDA, JPM, and KO.
The appeal is clear: RSI-based mean reversion is well-documented in academic literature, the universe is liquid, and the logic is intuitive. The risk is equally well-known: trending markets punish reversion bets, and RSI can stay extreme far longer than a position can stay solvent.
Backtest Performance
Over 451 days, the strategy generated a 14.73% total return on a starting equity base, compounding to a CAGR of roughly 8%. The win rate of 70.6% across 38 trades is respectable, and a max drawdown of 15.64% is within tolerance for an equity-long strategy.
That said, the Sharpe ratio of 0.58 is modest — enough to show the strategy earns its risk, but not enough to declare it robust. Turnover of 879% annualised is also notable: this is not a buy-and-hold overlay; it churns through positions at pace, making execution quality and trade costs meaningful factors at live scale.
Walk-Forward Validation: A Mixed Picture
Headmars runs a four-fold walk-forward validation to stress-test strategies before promoting them. The results here are instructive:
| Fold | Period | Return | Sharpe | Max DD | Trades |
|---|---|---|---|---|---|
| 1 | Aug 2024 – Jan 2025 | +2.06% | 0.57 | 4.24% | 8 |
| 2 | Jan 2025 – Jul 2025 | +11.10% | 1.32 | 10.53% | 10 |
| 3 | Jul 2025 – Dec 2025 | +2.21% | 0.46 | 8.80% | 6 |
| 4 | Dec 2025 – May 2026 | −2.84% | −0.33 | 14.96% | 10 |
Three of four folds are positive, and Fold 2 (Jan–Jul 2025) was genuinely strong at +11.1% with a Sharpe of 1.32. But the fourth and most recent fold — the one closest to live conditions — posted a −2.84% out-of-sample return with a negative Sharpe. That is the period the validation framework cares about most.
The platform's Probabilistic Sharpe Ratio sits at 0.785 and the Deflated Sharpe Ratio at 0.304 across six trials. The DSR in particular reflects the penalty for multiple testing: once you account for the number of strategy variants evaluated, the odds that the observed Sharpe is genuine rather than lucky are materially lower. The strategy did not pass validation.
Recent Activity
Since its last executed trade — a 21-share buy of WMT at $115.75 on 31 May 2026 — the strategy has run six consecutive daily scans through early July without triggering a single entry. Cash sits at $7,569.25 against a total portfolio value that has drifted between $9,848 and $9,942 over the period.
This inactivity is not a flaw; it reflects the strategy doing exactly what it should: waiting for RSI extremes that haven't materialised in a market running neither hot nor cold enough to trigger signals.
Strengths and Risks
Strengths: High win rate, transparent logic, liquid universe, and reasonable drawdown control in favourable conditions. Fold 2's performance demonstrates the strategy can produce meaningful alpha when market conditions align.
Risks: The negative out-of-sample fold and failing DSR are the dominant concerns. A Sharpe of 0.58 leaves little margin for slippage, regime shift, or a string of losing trades. High turnover amplifies these concerns at any meaningful capital scale. The strategy warrants continued paper-trading observation — particularly through a trending or volatile regime — before any capital commitment is considered.