A Bollinger Band Mean-Reversion Signal for YM and NQ Futures

Summary

This script presents a spread-style signal using continuous YM and NQ futures. It divides the YM close by the NQ close, smooths that ratio with a 200-period simple moving average, and uses it to scale NQ in a difference series. Bollinger Bands over that series define entry extremes: crossing below the lower band triggers a long signal, while crossing above the upper band triggers a short. Positions exit when the difference crosses back through the middle band.

The author says the pair was not found to be cointegrated and explains that the charting platform’s backtest trades only one security, so the implementation does not execute both legs of a true pairs trade. The document also reports very large maximum drawdown and cautions against relying on the approach without further work. It offers no detailed performance figures or evidence that the spread is stable, so the signals should be understood as an exploratory single-instrument proxy rather than validated market-neutral arbitrage.

Key ideas

• The strategy builds a difference series by scaling NQ with a smoothed YM-to-NQ price ratio.
• Bollinger Band extremes generate directional entries, with a return toward the middle band closing positions.
• The author reports that YM and NQ did not pass their cointegration checks.
• The backtest places trades in one instrument and does not simulate a two-leg pairs position.
• The stated large drawdown and lack of detailed results limit the evidence for the approach.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.