Thesis
Donchian-breakout applies one of the oldest systematic trend-following rules to a focused 24-stock universe of US mega-caps spanning technology, financials, healthcare, consumer staples, energy, and industrials. The logic is deliberately simple: enter long when a stock closes at a new 20-session high, exit when it closes at a new 20-session low. No macro overlay, no discretion — pure price-driven momentum with a defined exit rule baked in from day one.
Recent Activity: Quiet at the Gate
The strategy has been in a holding pattern for the past two weeks. Every scheduled run from June 24 through July 1, 2026 logged zero executed trades, with one to two signals rejected per session. The portfolio's total value has oscillated between roughly $9,489 and $9,744, with cash holding steady at $1,760.89 — existing positions are producing modest mark-to-market moves, but no new breakouts are clearing the entry filter.
The most recent executions came in early June: entries in KO (23 shares at $83.69), UNH (3 at $412.62), ABBV (11 at $218.75), AAPL (7 at $314.77), and CAT (2 at $941.58). Two exits also fired — CAT was sold at $857.78 against an entry of $941.58, and MSFT at $404.21 against a $450.24 entry. Both round-trips illustrate an inherent dynamic of breakout systems: entries cluster near short-term price peaks, and disciplined 20-day-low exits can crystallize losses that a discretionary trader might hold through.
Walk-Forward Performance
Over 451 calendar days, the strategy generated a total return of 6.95% (CAGR: 3.83%) across 108 trades, with a Sharpe of 0.34 and a maximum drawdown of 21.73%. Turnover reached 2,083%, consistent with an actively rotating trend-follower.
The four-fold walk-forward reveals a highly uneven equity curve:
| 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, and the two most recent — including the designated out-of-sample period — are genuinely strong, with OOS Sharpe landing at 1.86. The strategy appears to have found its stride in the sustained trending conditions that emerged mid-2025.
Validation Status: Not Yet Cleared
Despite the encouraging recent record, donchian-breakout has not passed the Headmars validation gate. The Probabilistic Sharpe Ratio (PSR) of 0.674 suggests roughly a 67% chance the true Sharpe is positive — directionally encouraging, but below conviction threshold. More critically, the Deflated Sharpe Ratio (DSR) sits at 0.198. With six parameter trials in scope, the DSR corrects for selection bias and deflates confidence substantially. Some portion of those strong recent returns may reflect the configuration that happened to fit the recent regime, not a durable edge.
Strengths and Risks
Strengths: The ruleset is fully transparent and mechanically reproducible. Folds 3 and 4 (Sharpe above 1.5) demonstrate that the strategy can outperform meaningfully in trending regimes, and the 24-stock universe provides natural sector diversification without diluting signal quality.
Risks: A 38.46% win rate is structurally normal for trend-following but demands patience — and a 21.73% maximum drawdown could be painful during choppy, mean-reverting markets, as Fold 2 demonstrated. The current two-week stretch of zero executions may represent prudent filtering or may signal that breakout conditions are simply absent right now.
Donchian-breakout earns cautious interest. The recent momentum is real, but the statistical validation gap means it still has something to prove before Headmars would consider it fully endorsed.