Guide · Mean reversion
Does Bollinger Reversion work?
Across 375 stocks, Bollinger Reversion cut the worst fall on 96%, beat buying and holding on risk-adjusted return on 15% and on raw return on 17%. Mainly a seatbelt: it softened the big falls on most stocks, but usually gave up return to do it.
What it predicts
A common way traders use the bands, not Bollinger's own: buy a close below the lower band, sell when price gets back to the middle.
- In on a close below the lower band (20-day average − 2 standard deviations).
- Out on a close above the 20-day average.
Mean reversion plays bet that short, sharp moves tend to snap back. The family guide
How to use it
- It trades often (about 9 switches a year per stock), so costs, spreads and taxes eat into it more than the backtest's 0.05% per switch suggests.
- It's right often (64% of calls), but check the size of the misses: a high hit rate can hide a few large losses.
- It sits in cash much of the time (holding on about 22% of days), so judge it on risk-adjusted return rather than on matching a rising market.
- It worked best on Micro caps (67% beat holding on risk-adjusted return) and worst on Big tech (0%).
- Use it as one input. Your signal combines the plays you count with the other factors you weight into one call.
When it worked
Bollinger Reversion did best against holding in the 2008 crash (+33% median gap) and worst in the 2020–21 rally (−32%). Median gap in return against holding the same stock (per year over stretches longer than 18 months; crypto excluded).
| 2008 crash | Recovery 2009–19 | COVID drop | 2020–21 rally | 2022 bear | Since Oct 2022 | |
|---|---|---|---|---|---|---|
| Bollinger Reversion | +33% | −11% | +8% | −32% | +15% | −8% |
Where it worked
By kind of stock: how often it beat holding on risk-adjusted return, and the median Sharpe ratio gap.
| Group | Beat holding, risk-adjusted | Sharpe gap |
|---|---|---|
| Micro caps | 67% | +0.15 |
| Metals & mining | 35% | -0.08 |
| Industrials & rentals | 33% | -0.38 |
| Healthcare | 22% | -0.12 |
| Media & telecom | 20% | -0.13 |
| Financials | 15% | -0.26 |
| Consumer & retail | 12% | -0.21 |
| Energy & power | 10% | -0.21 |
| Industrials & materials | 10% | -0.24 |
| Software & devices | 9% | -0.23 |
| Semiconductors | 9% | -0.19 |
| Sectors | 8% | -0.16 |
| Real estate | 5% | -0.21 |
| Indexes & ETFs | 0% | -0.18 |
| Big tech | 0% | -0.35 |
Where it helped most
Sharpe ratio gap against holding, stocks with 3+ years of history
Right now
Bollinger Reversion holds 105 of 377 names as of the Oct 13, 2026 close.
Changed its call in the last two weeks:
Backtest results since 2005 (or as long as each stock has traded), against holding the same stock over the same dates, after 0.05% per switch. Past results don't promise future ones. This analysis does not constitute trading advice. Please meet with an advisor or independently review sources before making any decision.