RealTest Low Drawdown Nasdaq Mean Reversion Strategy

EWMA Volatility Forecasting

The strategy uses an Exponentially Weighted Moving Average to estimate current volatility in the Nasdaq 100. Unlike static lookback windows, EWMA weights recent observations more heavily, adapting faster to regime changes. When forecasted volatility rises, the algorithm reduces position sizes and tightens exits. When volatility contracts, it allows wider stops and larger allocations. This adaptive sizing is the primary mechanism for controlling drawdowns.

Nasdaq 100 Universe Selection

Restricting the universe to Nasdaq 100 constituents provides a structural advantage for mean-reversion strategies. These are large-cap, highly liquid companies with institutional ownership. When they sell off, recovery tends to be driven by institutional rebalancing rather than speculative activity. The concentrated universe also means backtests can be run with realistic position sizes without liquidity concerns.

Drawdown Management

The strategy prioritizes risk-adjusted returns over raw CAGR. By scaling exposure inversely with volatility, it reduces the depth and duration of drawdowns compared to fixed-allocation mean-reversion approaches. All backtest results include Interactive Brokers commissions. Performance metrics including maximum drawdown, Sortino ratio, and drawdown duration are available on the product page.