TLT Bond Reversal

## TLT Bond Reversal — Full Methodology

### Rate Sensitivity Setup

1. **RSI oversold:** RSI(14) drops below 25 on TLT daily chart (extreme oversold — bonds have been hammered)

2. **Bollinger Band touch:** TLT closes at or below the lower Bollinger Band (20, 2.5σ) — wider bands for bonds

3. **Rate expectation:** Fed funds futures imply rate cuts or a pause within the next 6 months (dovish pivot)

### Entry Criteria

1. RSI(14) < 25 AND price ≤ lower Bollinger Band

2. **Reversal candle:** Wait for a bullish engulfing or hammer pattern on the daily chart

3. **Volume:** Reversal candle volume must be above the 20-day average (institutional buying)

4. Enter long at the next day's open

### Exit Rules

- **Profit target:** 20-day SMA (mean reversion target)

- **Stop loss:** 2% below the reversal candle low

- **Time stop:** Exit after 20 trading days

- **Rate surprise:** Exit immediately if Fed surprises with a hawkish decision during the hold period

### Position Sizing

- Risk 1% of portfolio per trade

- TLT has lower volatility than stocks — can allocate 15–25% of portfolio

### Best Market Conditions

Works best at the end of rate-hiking cycles when bonds are maximally oversold. The Oct 2023 TLT bottom was a textbook signal. Underperforms during sustained rate-hiking regimes where "oversold" keeps getting more oversold.

### Backtest Notes

Tested on TLT daily bars + Fed funds futures data from Jan 2015 to Dec 2024. The rate expectation filter is crucial — without it, the strategy catches falling knives during hiking cycles.