The thesis
Donchian-breakout is textbook trend following: buy 20-day high breakouts and exit on 20-day lows. The idea is to ride sustained moves and cut positions when momentum reverses. It runs live over a 24-name large-cap universe spanning tech (AAPL, MSFT, NVDA), financials (JPM, V, MA), healthcare (JNJ, UNH), staples (PG, KO, WMT) and energy (XOM, CVX). It's a diversified, liquid book — sensible ground for a breakout system.
Backtest and headline metrics
The full backtest returned 6.95% (final equity $10,695.11) over 451 days, a 3.83% CAGR. That's modest, and the risk profile is the honest sticking point: a Sharpe of just 0.34, a 21.73% max drawdown, and a 38.46% win rate across 108 trades. The low win rate is expected for trend following — you lose small often and win big occasionally — but the drawdown-to-return ratio is unflattering. Turnover of 2,082% is very high, and while fees totalled only $108 here, that churn is a real-world cost worth watching.
Validation: promising folds, failed gate
Walk-forward validation is where the story gets interesting. Across four folds, three were positive. The two most recent folds are genuinely strong: fold 3 returned 14.09% at a 2.72 Sharpe with only a 3.14% drawdown, and fold 4 (the out-of-sample window) returned 11.35% at a 1.86 Sharpe. Fold 2, spanning early-to-mid 2025, was the pain point at -7.46% and a -1.07 Sharpe.
Despite that, validation did not pass. The deflated Sharpe ratio (DSR) sits at just 0.198, and the probabilistic Sharpe ratio (PSR) at 0.674 — with six trials in the mix, the statistics penalise the multiple looks and can't confidently rule out luck. The recent out-of-sample strength is encouraging, but the gate is right to demand more evidence before promoting confidence.
Recent activity: stalled
Live behaviour has been quiet to the point of inert. The last executed trades were in early June — buys in KO, UNH, ABBV, AAPL and CAT, plus a couple of sells. Since then, every scheduled run from July 10 to July 17 executed zero orders and rejected one or two. Cash has been pinned at $1,760.89 the entire week while total equity drifted between roughly $9,863 and $10,089 — essentially flat, and below the $10k starting mark.
Verdict
The recent out-of-sample folds are the bull case; the weak DSR, high drawdown, and a week of rejected orders are the bear case. This is a strategy worth keeping live and observing, not one to size up. Watch whether the July stall reflects a genuine absence of breakouts or an execution/sizing constraint — and whether fold-3-and-4 strength survives more trials.