Strategy Overview
Donchian Breakout targets momentum across a curated universe of 24 large-cap US equities spanning technology, healthcare, financials, consumer staples, and energy. The rule set is deliberately spare: enter on a 20-day high breakout, exit when price falls to a 20-day low. No fundamental overlay, no sentiment filter — pure price action.
The appeal is well-documented: trend-following captures outsized moves while limiting exposure during range-bound markets. The tradeoff is equally familiar — low win rates and painful whipsaw during choppy, mean-reverting regimes.
Backtest at a Glance
Over 451 trading days the strategy returned 6.95%, finishing at $10,695 on a starting base, with a CAGR of 3.83%.
| Metric | Value |
|---|---|
| Total Return | 6.95% |
| CAGR | 3.83% |
| Sharpe Ratio | 0.34 |
| Max Drawdown | 21.73% |
| Win Rate | 38.46% |
| Total Trades | 108 |
The 21.73% max drawdown is the headline concern. A Sharpe of 0.34 does not compensate holders adequately for that peak-to-trough exposure. A 38.46% win rate is normal for trend-following — the edge must come from large wins outweighing frequent small losses — but at this Sharpe level, that payoff asymmetry has not yet materialized convincingly. Turnover of 2,083% reflects active position cycling across the universe, with $108 in total fees under the flat paper model.
Walk-Forward Validation
The strategy did not pass the platform's statistical gate (PSR: 0.674, DSR: 0.198 across six trials), but the fold-by-fold picture is more nuanced.
| Fold | Period | Return | Sharpe | Max DD |
|---|---|---|---|---|
| 1 | Aug 2024 – Jan 2025 | +0.73% | 0.21 | 6.71% |
| 2 | Jan 2025 – Jul 2025 | −7.46% | −1.07 | 15.58% |
| 3 | Jul 2025 – Dec 2025 | +14.09% | 2.72 | 3.14% |
| 4 | Dec 2025 – May 2026 | +11.35% | 1.86 | 6.01% |
Three of four folds are positive. More significantly, the two most recent folds are the strongest — Fold 3 posts a Sharpe of 2.72 with only a 3.14% drawdown, and Fold 4 (the out-of-sample period) returns 11.35% at a 1.86 Sharpe. The failure point is Fold 2, which corresponds to a volatile stretch in early-to-mid 2025. During that window the strategy gave back 7.46% with a 15.58% drawdown — a textbook whipsaw episode for a trend-follower.
Recent Activity — June 2026
Live execution has been measured. Over the six scheduled runs from June 5–11, the strategy executed trades on three days with several signals rejected, likely due to position-sizing constraints.
Notable recent trades:
- Jun 10 — Bought 23 shares of KO at $83.69; sold 2 shares of CAT at $857.78 (entered at $941.58 on Jun 4, a realized loss on that position).
- Jun 9 — Entered UNH at $412.62; exited MSFT at $404.21 (entered at $450.24 on May 31).
Account value has drifted from ~$9,917 on June 4 to $9,466 on June 11, reflecting a modest drawdown in recent sessions. The sector rotation — out of mega-cap tech and into defensive (KO) and healthcare (UNH) — is consistent with breakout signals shifting as market leadership rotates.
Assessment
Donchian Breakout is a structurally sound trend-following skeleton with real upside in trending markets. The improving fold trajectory warrants watching: if Folds 3 and 4 quality persists, the statistical gate may be cleared with a longer live track record.
For now, the 21.73% max drawdown and failed validation thresholds mean this strategy belongs in observational / paper-trading status rather than live allocation. The core risk remains unchanged — if the volatile Fold 2 regime returns, the strategy will give ground quickly and without warning.