Bollinger Band mean reversion, backtested
Bollinger Bands draw a 20-day moving average with a band two standard deviations either side, so roughly 95% of closes fall inside them under a normal distribution. The mean-reversion trade takes the other 5% as a signal: a close below the lower band is unusual, and the bet is that it snaps back to the middle. The catch, which the tool below will show you, is that price is not normally distributed and the biggest moves cluster.
The rules, exactly
This is what the run above loads. Every number in it stays editable — change the ticker, widen the stop, and run it again.
- Buy at the close when the price closes below the lower band (20-day average, 2 standard deviations).
- Sell on the move back toward the middle band, or at the 2R target if it gets there first.
- A 1.5 ATR stop is what stops "it must snap back" from becoming an unlimited hold.
- Fees and slippage on, at 0.1% and 0.05% per side.
Screens for: $10B+ · 2M+ shares a day · profitable. That filter does nothing on the single-stock run above — it is the pool this strategy is really meant to trade, and it comes into play when step 1 is switched from one ticker to the whole US stock market. The momentum screener is a free way to see a ranked pool like it today.
What to watch for
The lower band is not a floor. In a real decline the bands widen and the price walks down the outside of them, which is where a mean-reversion rule takes its worst losses — the stop is doing the load-bearing work here, not the signal. Test this on a single volatile stock as well as on an index below; the difference between the two is the whole argument for the large, liquid, profitable screen this template carries.
Before you trust any backtest
A backtest is a measurement of the past under assumptions you chose, and the assumptions are where results go wrong. Three that matter here: the run covers five years of daily closes, so it has seen one bull market and one bad year rather than a full cycle; fees and slippage are included but your broker’s may differ; and a strategy that fired only a handful of times has told you almost nothing, however good the numbers look. The tool reports the trade count for that reason — read it first.
Want to change the rules rather than the numbers? The full backtester builds a setup out of plain-English conditions, and this template arrives in it already loaded and editable.
The other prebuilt strategies
- Golden Cross — Hold while the 50-day average is above the 200-day; step aside when it crosses back under.
- RSI-2 reversion — Buy an uptrending market when the 2-day RSI washes out below 10; sell the bounce above 70.
- Trend pullback — In a long uptrend, buy the dip that reclaims the 50-day average — a bounce off the trend.
- Impulse pullback — A fresh 6/18 EMA cross marks a brand-new trend; buy its first small dip as it resumes.
- Donchian breakout — Buy a 20-day high the way the Turtles did; exit on a 10-day low or the 2R target.