Thesis
Channel-pullback is a trend-following / mean-reversion hybrid: it waits for a confirmed uptrend, then enters when price retreats to the lower bound of a linear regression channel or a volume-supported zone, and targets the upper channel as the exit. The logic is textbook and time-tested — buying weakness inside a trend, not against it. The 24-name universe spans mega-cap technology (AAPL, MSFT, NVDA), financials (JPM, V, MA), healthcare (JNJ, UNH), and defensives (KO, WMT, PG), giving the strategy a quality-biased but broadly diversified opportunity set.
Backtest Overview
Over 451 days and 137 paper trades the strategy returned +7.62%, compounding at 4.19% annualised. The overall Sharpe of 0.40 is modest by institutional standards but not negligible for a daily rules-based scanner. The harder number to overlook is the 14.83% maximum drawdown — nearly twice the total return — which means the strategy can spend long stretches deeply underwater before recovering.
The 39.4% win rate is deliberately low: channel-pullback is designed to cut losers quickly and let winners ride to the upper channel. When regimes cooperate that asymmetry shines — Fold 3 (Jul–Dec 2025) returned +20.68% on a Sharpe of 3.86 with a drawdown of only 3.26%. When channels break down in trending or choppy markets the same asymmetry punishes: Fold 2 (Jan–Jul 2025) delivered −11.42% with a Sharpe of −1.70 and a 16.09% drawdown. One bad regime erased more than the cumulative gains of the surrounding periods.
Annualised turnover of 2,311% is extremely high. In a live account, commissions and market impact would compress returns meaningfully relative to these paper figures.
Walk-Forward Validation
Four-fold walk-forward produced 3 positive folds and 1 negative. The out-of-sample (OOS) return stands at +3.63% with an OOS Sharpe of 0.74 — notably higher than the full-sample Sharpe of 0.40, which is an encouraging signal that the strategy is not purely fitted to historical noise.
Nevertheless, the validation did not pass. The Probabilistic Sharpe Ratio of 0.702 sits only marginally above the 50% threshold. More telling is the Deflated Sharpe Ratio of 0.196: correcting for 7 parameter trials, there remains a meaningful probability that the observed edge arose by chance rather than from a genuine market inefficiency. Until that figure clears the threshold the strategy stays in monitored paper-trading status — which is exactly where it belongs.
Recent Activity
The past week has been selective. The June 4 session was the busiest, executing four trades: entries in DIS ($99.29) and MSFT ($427.54), and exits from UNH ($396.30) and JPM ($311.52). June 10 bought CAT at $857.78 — a re-entry after the prior CAT leg was closed at $908.35 eight days earlier — and simultaneously exited the MSFT position at $400.31, crystallising a loss on that six-day hold. Sessions on June 5, 8, 9, and 11 scanned the universe but found no qualifying setups, logging only rejections. Portfolio value drifted from $10,380 on June 4 to $10,256 on June 11.
Strengths and Risks
Strengths: Rules-based entry and exit with a clear thesis; quality-biased universe limits liquidity risk; OOS Sharpe improves on in-sample, suggesting limited overfitting; disciplined rejection rate shows the channel filter is working as intended.
Risks: Formal validation has not cleared — the DSR is the primary blocker. Fold 2 is a live reminder that a single adverse macro regime can inflict drawdowns that dwarf cumulative gains. High turnover would erode live performance relative to paper results, and a sub-40% win rate demands consistent large winners to stay positive — a dependency that deserves continued monitoring.