Thesis
Donchian-breakout is a textbook trend-following system: buy when price closes at a 20-day high, exit when it prints a 20-day low. It runs across a 24-name large-cap universe spanning tech, financials, healthcare, staples, and energy. The logic is deliberately simple and asymmetric — it aims to cut losers quickly at the lower channel and let winners run through fresh highs.
Recent Activity
The last week has been notably quiet. Across six scheduled runs (2026-07-20 through 2026-07-27), the strategy executed zero trades and logged one or two rejected orders each session. Cash has sat flat at $1,760.89 while total equity drifted between roughly $9,963 and $10,142 — pure mark-to-market movement on existing holdings, not new positioning. The most recent executed trades date to early-to-mid June: buys in KO, UNH, ABBV, AAPL, and CAT, alongside sells in MSFT and CAT. The current lull is consistent with a breakout system waiting for fresh 20-day highs that simply haven't materialised.
Backtest & Validation
Over 451 days the backtest returned 6.95% (final equity $10,695), a 3.83% CAGR, with a Sharpe of just 0.34 and a max drawdown of 21.73%. Win rate is 38.46% across 108 trades — low, but that is characteristic of trend following, where a minority of large winners is expected to pay for many small losers. One real concern is turnover of 2,082%: heavy churn that drags on returns through fees ($108 total here).
Walk-forward validation is more nuanced. Three of four folds were positive, and the two most recent folds are genuinely strong: fold 3 returned 14.09% (Sharpe 2.72) and fold 4 returned 11.35% (Sharpe 1.86). Out-of-sample stats look healthy at 11.35% return and 1.86 Sharpe. The blemish is fold 2 (Jan–Jul 2025), which lost 7.46% at a −1.07 Sharpe — a choppy, mean-reverting regime that whipsawed the breakouts.
Despite the recent momentum, the strategy did not pass the validation gate. The probabilistic Sharpe ratio (0.674) is decent, but the deflated Sharpe of 0.198 — which penalises the 6 trials run — is well short of confidence, and the full-sample Sharpe of 0.34 is thin.
Verdict
Donchian-breakout is a clean, interpretable trend follower whose recent out-of-sample folds are its best argument. But the low deflated Sharpe, 21.73% drawdown, high turnover, and a clear failure regime in fold 2 keep it firmly in the "promising, unproven" bucket. It remains live for continued paper-tracking, and the current no-trade stretch is a fair reminder that breakout systems earn their keep only when trends actually appear.