Mean reversion · Beginner · Weekly check — signals fire infrequently
Bollinger Band MR
How it works, and when it doesn't.
Extreme deviations revert. The lower band is not a prediction — it's an identification of statistical anomaly that the market will correct.
Price 759.8 inside BB [737.4, 783.0]. RSI=48. No extreme condition.
Why it works
Bollinger Bands create a statistical envelope around price. When price touches the lower band (2 standard deviations below the 20-day mean), it has moved further from equilibrium than 95% of recent days — creating a high-probability reversion setup.
The signal logic
- Compute SMA(20) and ±2σ bands on daily close
- Long when Close < Lower Band — statistically oversold
- Watch when Close > Upper Band — may be overbought
When it fails
In trending markets, price can 'walk the band' — staying below the lower band for weeks during a genuine downtrend. The reversion never comes.
- Best market
- Range-bound markets, commodities like GLD, mean-reverting assets
- Worst market
- Trending bear markets — price walks the lower band indefinitely
Backtest
| Sharpe ratio | 0.72 |
| Annual return | 7.4% |
| Worst drawdown | -9.2% |
| Trades in the backtest | 37 |
Backtest on daily bars, positions taken the bar after the signal (no look-ahead).
Bollinger Band MR, live.
Re-scored after every close.
The platform runs this and 32 other strategies against the live tape each day — with the evidence behind every number.