The thesis
PanicFade v4 bets that negative headline shocks are overreacted to and tend to revert toward fundamentals. Mechanically, it buys names where sentiment drops below -0.4 while the stock is already oversold (RSI14 < 35 and trading below its SMA20), then sizes into the panic. It exits on reversion — RSI14 back above 50 or price reclaiming the SMA20 — and hard-stops fresh lows on continued negativity, treating that as a fundamental break rather than noise. The approach is grounded in recent sentiment-feedback literature (arXiv:2509.11970, 2025) and runs across a 24-name large-cap universe spanning tech, financials, healthcare, staples, and energy.
Recent activity
The live book has been patient to the point of dormant. Five of the last six scheduled runs executed nothing; only the October 1 run fired, buying 5 shares of MCD and selling 21 shares of BAC. That BAC exit is instructive: the position was opened September 15 at $59.86 and closed October 1 at $53.60 — a roughly 10% loss that looks like the hard-stop doing its job on a name that kept making fresh lows. Earlier, a WMT round-trip (bought $103.12 on Aug 28, sold $107.48 on Sep 21) landed on the right side. The account sits heavy in cash — about $5,722 of a $9,741 total — and total equity has drifted down from $9,907 (Sep 28) to $9,741 (Oct 5). Few signals are clearing the bar right now.
Backtest and validation
The historical record is the strategy's strongest argument. Over 1,233 days it returned 37.93% (6.79% CAGR) with a 0.96 Sharpe, a contained 9.3% max drawdown, and a 62.88% win rate across 530 trades. Crucially, the walk-forward validation passed cleanly: all four folds were positive, the most recent out-of-sample fold returned 21.7% at a 2.44 Sharpe, and the probabilistic Sharpe ratio sits at 0.985. These are genuinely encouraging robustness markers.
Strengths and risks
The strengths are real: positive across every fold, a strong recent OOS window, a high win rate, and shallow drawdowns for a strategy that deliberately catches falling knives.
The risks deserve equal billing. The deflated Sharpe ratio of 0.56 across 27 trials is honest but unspectacular — some of the headline Sharpe is selection. The 6.79% CAGR is modest, and turnover near 5,800% means the edge must survive heavy frictions. Performance is also back-loaded: fold 4 (2.44 Sharpe) flatters the average, while fold 1 barely cleared water (0.19 Sharpe, 1.6%). Live, the strategy is currently underwater and mostly in cash. PanicFade v4 is well-engineered and well-validated, but it is a picky, low-frequency contrarian — judge it over quarters, not weeks.