Thesis
The mean-reversion strategy operates on one of the oldest premises in systematic trading: prices that stray too far from equilibrium tend to snap back. Concretely, the algorithm scans a 24-symbol universe of large-cap U.S. equities — spanning tech, financials, healthcare, consumer staples, energy, and industrials — and enters long positions when RSI drops below 30, exiting when RSI climbs above 70. No leverage, no shorts.
The logic is intuitive. In a universe dominated by institutionally covered mega-caps, extreme oversold readings often reflect temporary sentiment dislocations rather than structural deterioration. Buying fear and selling greed is a time-honoured edge.
Backtest Headline Numbers
Over 451 trading days (roughly August 2024 through mid-2026), the strategy executed 38 trades and produced the following results:
| Metric | Value |
|---|---|
| Total Return | 14.73% |
| CAGR | 7.98% |
| Sharpe Ratio | 0.58 |
| Max Drawdown | 15.64% |
| Win Rate | 70.59% |
| Turnover | 879% |
A 70.6% win rate on 38 trades is genuinely strong for a rules-based long-only system. The 7.98% CAGR is modest but plausible for a conservative strategy in a mixed-regime period.
Walk-Forward Validation: Where It Unravels
Headmars runs a 4-fold walk-forward validation before promoting any strategy to live capital. This is where the picture complicates.
| 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 |
Fold 2 is the strategy's standout period — Sharpe of 1.32 in a volatile mid-2025 market suggests the signal was genuinely firing. But Fold 4, the most recent out-of-sample window, reversed with a -2.84% return and -0.33 Sharpe. Three of four folds are positive, yet the most recent one is the worst.
The aggregate out-of-sample return lands at -2.84%, and the Deflated Sharpe Ratio (DSR) of 0.304 — which penalises for the 6 trials run — fails to clear the 0.5 bar. Validation status: not passed.
Recent Activity: Patience or Paralysis?
The last executed trade was a buy of 21 shares of WMT at $115.75 on 31 May 2026. Since then, the strategy has run daily through early July without triggering a single entry or exit. Portfolio cash sits at $7,569.25 against a total value of approximately $9,900–$9,960, implying the open WMT position is modestly underwater relative to account high.
The silence makes sense mechanically: in a broadly trending or calm market, RSI readings for mega-caps rarely touch extremes. The strategy is inherently low-frequency by design.
Strengths and Risks
Strengths: High win rate, simple logic that doesn't overfit on parameters, universe restricted to liquid large-caps which limits slippage risk, and reasonable max drawdown relative to return.
Risks: The DSR of 0.304 is the key red flag — after accounting for the number of backtests run, the probability of a genuine edge (PSR of 0.785 notwithstanding) remains uncertain. Fold 4's deterioration coincides with a higher-volatility, trend-driven environment where RSI extremes may signal continuation rather than reversion. The strategy also runs long-only, leaving it fully exposed to broad market drawdowns without a hedge.
Until recent out-of-sample performance recovers and the DSR clears the validation threshold, mean-reversion remains in monitored paper-trading status.