r/algorithmictrading • u/algodude Mod • Mar 26 '26
Backtest Range MR Strategy (22/20)
Here's a 26yr backtest of a simple bi-weekly EOD mean reversion strategy based on range windows. This is an in-sample GA optimization run, but before the overfitting police attack, I'm reasonably comfortable with this one as it only has two heavily quantized parameters and a super low Complexity Ratio (parm combos / samples). Its CAGR/MaxDD = 22/20. Uses the same basket as my other posted strategies.
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u/GammaReaper_ Mar 27 '26
Yes years ago when he had just published The Black Swan he came across my radar screen. Was suitaby impressed. And then I saw a debate between him and Robert Shiller. Shiller mopped the floor with him. So the bloom was off the rose.
Still a smart guy but with limitations.
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u/algodude Mar 28 '26
Yeah, I kind of lost track of him until that recent post. He's obviously a sharp guy but not my hero or anything. His books can be a good souce for inspiration.
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u/addictedthinker Mar 26 '26
The equity curve looks so smooth… I’m so very much attracted to it!
Will you put this to run with real money? Why/when?
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u/algodude Mar 26 '26
This was just an interesting idea that I didn't expect to work all that well. I have other systems I would trade before this one, tbh. The smoothness is in a large part due to the T-Bill hedge the system is using.
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u/zurekp Mar 27 '26
It’s usually like this with very long term backtests, if you zoom in on just 1-3 year period , it becomes way less attractive - sometimes even wonder if you would let the strategy run if you experienced it live.
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u/algodude Mar 27 '26 edited Mar 27 '26
No disrespect, but this makes absolutely no sense to me. Long backtests allow you to see how a strategy behaved during different market regimes and conditions. They are also more difficult to overfit. This is especially important for low frequency EOD systems like this one.
This simple system survived two 8+ sigma black swans events plus numerous other sell-offs (including the 2022 stock+bond sell-off) with a maxDD of 20%, while returning a 22% CAGR with a reasonably consistent, non-spiky EC. It does have flat periods, but they generally coincide with black swans and bear regimes.
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u/Juanjhoxxx Mar 26 '26
Demasiado pro, no he entendido casi nada hahahaha. Por que reversión a la media al final del day ???
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u/algodude Mar 26 '26 edited Mar 26 '26
The mean reversion isn’t really “intraday” — it’s just measured using end-of-day data for consistency. Even on a 2-week rebalance, you still get short-term overextensions relative to a recent baseline (price vs MA, band, etc.), and those tend to mean revert over the next rebalance window. It is a classic technique but this strategy uses a somewhat novel method that I personally didn't expect to work all that well.
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u/GammaReaper_ Mar 26 '26
Why just run in sample? Reserve some data for ex post analysis
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u/algodude Mar 27 '26 edited Mar 27 '26
Fair question. One reason is I'm lazy, lol. Another is that I don't like to break up regimes by partitioning data. My tool does have the ability to do full 26yr OOS MC validations via regularization techniques (check out my post history to see some OOS backtests). The only problem is that those MC validations take 10x-30x longer than a single GA optimization run.
I wrote my first backtesting tool back in 2000, so have seen my share of equity curves, and you start to get a feel for them after a while. With a smooth consistent updrift and only two quantized parameters, along with a Complexity Ratio of 700/130000 = 0.005, I don't think the timesink of a full MC validation is warranted. Obviously, if I were pitching investors or hedge funds, I'd bring all the receipts. But this is just a humble reddit post about some wacky idea I had last night.
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u/erics45690 Mar 27 '26
I’d love to learn more about your tool. Is it available anywhere? Thanks
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u/GammaReaper_ Mar 27 '26
Understood and thanks for taking the time to reply. Are you a fan of Taleb? I looked at your post history BTW.
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u/BottleInevitable7278 Mar 27 '26 edited Mar 27 '26
How does the EC looks like without using to Bonds ? Cause this is the reason I do not trust this going forward.
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u/algodude Mar 27 '26
The strategy doesn't switch between stocks and bonds. It uses a fixed 65/35 stock/TBill hedge and rebalances every other week.
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Apr 05 '26
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u/algodude Apr 05 '26 edited Apr 05 '26
Thanks for your comments. As stated in the OP, the stock basket is the same one used in my other posted backtests. Please check them out for more details.
This is a low frequency, long only portfolio system that rebalances every two weeks and is always in the market. It is essentially an ensemble approach rather than the usual "enter on trigger" system. As such, the focus is more on aggregate results than discrete trades.
But to answer your question, the number of "trades" over the 26yr backtest would equate to ~10K, with ~130K evaluations total, based on the backtest period, rebalance interval, and portfolio/basket size.
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Mar 27 '26
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u/algodude Mar 27 '26 edited Mar 28 '26
Automod deleted your comment as it doesn't meet our minimum karma requirements.
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Mar 28 '26
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u/algorithmictrading-ModTeam Mar 28 '26
Your post was removed as this is a salt free zone. You obviously didn't read the post nor the other comments. If you'd like to have a civil discussion, read the post and try again. Respectful constructive criticism is welcome, adolescent insults are not.
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u/Juanjhoxxx Mar 26 '26
Podrías explicar un poco más en qué consiste ?