Strategy Thesis
Donchian-breakout applies one of systematic trading's oldest rules to a focused universe of 24 U.S. large-caps spanning technology, financials, healthcare, consumer staples, and energy. The logic is straightforward: enter when a name prints a 20-day closing high, exit when it closes at a 20-day low. No fundamental filter, no macro overlay — pure price structure.
Trend-following strategies of this type historically earn their returns through a small number of large winners that more than offset frequent small losses. The strategy's 38.5% win rate sits squarely in that mould.
Recent Activity
The strategy's last executed trades settled on 10 June 2026: a 23-share buy of KO at $83.69 and a 2-share sale of CAT at $857.78. The CAT round-trip — entered at $941.58 on 4 June and exited six days later — illustrates the discipline the system enforces: the 20-day low rule triggered a stop before the loss compounded. Earlier in the window, MSFT was bought at $450.24 and sold at $404.21, and UNH was added at $412.62.
Since 30 June, every scheduled run has logged zero executions, with between one and three signals rejected per session. Portfolio value has ranged from $9,664 to $10,005 over that period, reflecting passive mark-to-market drift rather than active positioning. Cash on hand stands at $1,760.89 — roughly 18% of the ~$9,957 portfolio — suggesting the strategy is sitting on the sideline, waiting for clean breakouts that have not yet materialised.
Cross-Validation: A Mixed Picture
The walk-forward results across four sequential folds reveal meaningful dispersion:
| 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 were profitable. The out-of-sample period (Fold 4) returned +11.35% with a Sharpe of 1.86 — the strongest risk-adjusted result in the set. That is an encouraging sign of recency, but one fold does not establish robustness.
Strengths
The most recent two folds both produced double-digit returns with contained drawdowns (6% or less), suggesting the strategy may have found a more favourable regime as trend persistence returned to large-cap equities. High turnover (2,083%) keeps the book fresh and limits prolonged exposure to any single losing position.
Risks and Concerns
The headline Sharpe of 0.34 is low, and the formal validation result is clear: the strategy did not pass. The Deflated Sharpe Ratio of 0.198 — which penalises for the number of parameter trials (6) — implies there is roughly a 20% probability the measured edge is real after accounting for multiple testing. The overall maximum drawdown of 21.73% against a 6.95% total return means the strategy has given back more than three times its net gain at its worst point. Fold 2's –7.46% loss, coinciding with a period of elevated market volatility, is a reminder that large-cap breakout strategies can be whipsawed sharply when ranges compress and reversals accelerate.
Bottom Line
Donchian-breakout is a well-defined, rules-based system that is showing real momentum in its two most recent periods. The validation failure is not a death sentence — it is a prompt to extend the track record before drawing firm conclusions. Investors following this strategy on Headmars should treat it as a live experiment rather than a proven edge, and monitor whether the strong recent Sharpe holds through the next market stress period.