Strategy Thesis
donchian-breakout applies one of the oldest rules in systematic trading: enter when a stock closes at a 20-day high, exit when it closes at a 20-day low. The universe covers 24 large-cap US names across technology, financials, healthcare, consumer, and energy — liquid names where slippage is rarely a factor.
The logic is deliberately simple. Breakouts signal momentum; the channel exit enforces discipline without a fixed stop-loss. The tradeoff is a sub-50% win rate (38.5% historically) — standard for all trend-following systems. The edge depends entirely on letting winners run far enough to offset the many small losses.
Walk-Forward Performance
Four walk-forward folds have completed since August 2024:
| Fold | Period | Return | Sharpe | Max DD | Trades |
|---|---|---|---|---|---|
| 1 | Aug 2024 – Jan 2025 | +0.73% | 0.21 | 6.71% | 30 |
| 2 | Jan – Jul 2025 | -7.46% | -1.07 | 15.58% | 38 |
| 3 | Jul – Dec 2025 | +14.09% | 2.72 | 3.14% | 20 |
| 4 | Dec 2025 – May 2026 | +11.35% | 1.86 | 6.01% | 26 |
Three of four folds are positive, and the two most recent are the strongest yet — both in return and risk quality. Fold 3 delivered a 2.72 Sharpe on just 20 trades, and Fold 4 followed with 1.86 on 26 trades. The trend toward fewer, higher-conviction entries is notable; it may reflect a maturing signal filter or simply a more momentum-friendly market regime.
Full-period metrics: 6.95% total return, $10,695 final equity, 3.83% CAGR over 451 days.
Validation Gate: Not Yet Clear
Despite recent momentum, donchian-breakout has not passed the platform's automated validation gate. The Probabilistic Sharpe Ratio (PSR) is 0.674, meaning roughly 67% confidence the true Sharpe exceeds benchmark — directionally encouraging but below the deployment threshold. The Deflated Sharpe Ratio (DSR) of 0.198 is the harder problem: it penalizes for six strategy trials and the relatively short live track record. With 108 total trades over 451 days, the statistical base is still thin.
Fold 2's -7.46% loss is the clearest risk flag. It coincided with a ranging, choppy market — exactly the environment where breakout systems give back gains as false signals accumulate. The full-backtest max drawdown of 21.73% against a 6.95% gross return underscores the asymmetry: the strategy can lose roughly three times its total gain on a single bad stretch.
Recent Activity — June 2026
The strategy opened June with four buys: AAPL (7 shares at $314.77), MSFT (5 shares at $450.24), ABBV (11 shares at $218.75), and CAT (2 shares at $941.58). Portfolio value peaked at $10,052 on June 1 before drifting to $9,715 by June 8 — a ~3.4% pullback over the week. The June 5 and June 8 daily runs each produced zero executions and one rejected signal, indicating the strategy is holding its current book and waiting for fresh breakout confirmation rather than chasing the move.
Cash on hand is approximately $1,256, with total portfolio value at $9,715 as of the latest run.
Bottom Line
donchian-breakout is a mechanically sound trend-follower showing genuine improvement in its most recent folds. The strong Folds 3 and 4 are real signal — but the high fold-to-fold variance and low DSR mean the platform cannot yet distinguish skill from luck with the confidence required for auto-deployment. Another strong six-month fold would meaningfully lift both the PSR and the trade count. Until then, this strategy earns its place as an active paper portfolio — accumulating the track record it needs to make a credible case.