Buying Extreme Drawdowns with Rolling Standard Deviation Thresholds

Summary

This strategy looks for unusually deep price declines as potential mean-reversion entries. It measures the current close’s percentage drawdown from the highest high in a rolling lookback, then calculates the recent mean and standard deviation of those drawdowns. A long position is opened when the current drawdown falls at least one standard deviation below its mean, using the published threshold. The position is closed after a fixed number of bars, and the script plots multiple deviation levels to show how extreme the drawdown is relative to its recent history.

The stated defaults use 50 bars for both the peak lookback and statistical window, with an exit after 35 bars. The provided backtest settings cover daily BTC/USDT futures data from late 2019 through late 2024, but the document gives no performance statistics. It also warns that declines can persist, that the drawdown distribution may change across market regimes, and that a fixed holding period can cut off either further losses or a larger rebound. Volume confirmation and stop-loss rules are suggested as possible additions, not included in the core entry logic.

Key ideas

• The strategy defines drawdown as the close’s percentage decline from a recent rolling high.
• It enters long when drawdown is below its rolling mean by a chosen standard deviation multiple.
• A fixed bar count determines when an open position is closed.
• The published daily BTC/USDT futures settings include no performance results, and persistent downtrends remain a central risk.

Tags

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