Thesis
The donchian-breakout strategy runs one of the oldest ideas in systematic trading: buy 20-day high breakouts and exit on 20-day lows. It is pure trend-following, applied to a 24-name universe of large-cap U.S. equities spanning tech (AAPL, MSFT, NVDA), financials (JPM, BAC, V, MA), healthcare (JNJ, UNH, PFE, ABBV), and staples/industrials (KO, PG, COST, CAT, XOM). The premise is simple and honest: catch the fat tail of a sustained move, and cut losers when momentum reverses.
Recent activity
Here is the uncomfortable part. The strategy's last executed fills were back in early-to-mid June — buys in KO, UNH, ABBV, AAPL and a couple of MSFT rotations. Since then, every scheduled run from July 21 through July 28 reports 0 executed, 1–2 rejected, with cash pinned at $1,760.89. In other words, the book is nearly fully deployed and new breakout signals can't be funded. Total portfolio value has drifted in a tight $9,962–$10,377 band over that week — essentially flat, doing nothing. For a trend system, sitting idle isn't a bug so much as a symptom: either capital allocation is too tight for the position sizing, or the universe simply isn't printing fresh 20-day highs worth chasing.
Backtest & validation
The headline backtest is unremarkable but not embarrassing: +6.95% total return over 451 days (3.83% CAGR), a Sharpe of just 0.34, a 21.73% max drawdown, and a 38.46% win rate across 108 trades. That low hit rate is expected for breakout systems — you lose often and small, and rely on a handful of big winners. The 2,083% turnover, however, is high, and at $1 per trade the fees are a real drag on a $10k book.
Walk-forward tells a more nuanced story. Three of four folds were positive: Fold 1 (+0.73%), Fold 3 (+14.09%, Sharpe 2.72) and Fold 4 (+11.35%, Sharpe 1.86). Fold 2, covering early-to-mid 2025, was the pain trade at -7.46% with a -1.07 Sharpe. The most recent out-of-sample window looks genuinely strong.
So why did validation fail? Because a good-looking OOS Sharpe isn't enough once you correct for luck. The deflated Sharpe ratio (DSR) is only 0.198 and the probabilistic Sharpe (PSR) 0.674 — both well short of confidence — across 6 trials. The gate is right to be skeptical: strong recent folds can flatter a strategy whose full-sample Sharpe is a mediocre 0.34.
Verdict
Donchian-breakout is a clean, interpretable trend-follower with encouraging recent OOS behavior, but it hasn't earned statistical trust, its drawdown is steep, and it's currently capital-starved and inert. Worth keeping live to observe — not worth sizing up until the DSR clears the bar.