The thesis
Donchian Breakout is a classic trend-following system: buy when price closes above its 20-day high, exit when it breaks below its 20-day low. It runs on a 24-name universe of US large caps spanning tech, financials, healthcare, staples and energy — AAPL, MSFT, NVDA, JPM, JNJ, XOM and CAT among them. The logic is simple and time-tested, but simplicity cuts both ways: breakout systems are designed to catch a few large winners while eating many small losses.
Backtest performance
Over 451 days the backtest returned 6.95% (final equity $10,695.11), a 3.83% CAGR, on 108 trades. That headline masks the strategy's real character. The win rate is just 38.46% — losing more often than it wins — while a Sharpe of 0.34 and a 21.73% maximum drawdown point to a bumpy, low-risk-adjusted ride. Turnover of 2,082% is enormous, though total fees ($108) and FX costs ($0) stayed modest. This is textbook trend-following: low hit rate, occasional big wins, and a drawdown you have to be willing to sit through.
Validation: not yet convincing
The strategy failed formal validation. There is genuine encouragement in the walk-forward folds — three of four were positive, and the most recent out-of-sample window (Dec 2025–May 2026) returned 11.35% at a 1.86 Sharpe, with fold 3 even hotter at 14.09% and a 2.72 Sharpe. But fold 2 (Jan–Jul 2025) lost 7.46% at a -1.07 Sharpe, exposing how sharply performance swings with regime.
The deflated statistics tell the cautionary half. The Probabilistic Sharpe Ratio sits at 0.674, but the Deflated Sharpe Ratio is only 0.198 across 6 trials — once you account for multiple testing, the edge is not statistically distinguishable from luck. That gap is exactly why the validation gate said no.
Recent activity: stalled
Live behaviour is the clearest warning. The last six scheduled runs (2026-07-06 through 07-13) executed zero trades and logged 1–3 rejected orders each, with cash pinned at $1,760.89 and total equity drifting between $9,882 and $9,957 — below the $10,000 the backtest started from. The most recent real fills date to early-to-mid June: buys in KO, UNH, ABBV, AAPL and CAT, and sells in MSFT and CAT. Since then the book has effectively frozen, with new signals repeatedly rejected.
Verdict
Donchian Breakout has a coherent thesis and a strong recent out-of-sample stretch, but three problems keep it in the "watch, don't fund" bucket: a sub-40% win rate, a >20% drawdown, and a deflated Sharpe that collapses under multiple-testing scrutiny. The stalled live runs and repeated rejections suggest execution or sizing constraints are now the binding issue, not just alpha. Promising in the right regime — unproven overall.