The thesis
Donchian Breakout runs one of the oldest ideas in systematic trading: buy the 20-day high, sell the 20-day low. It is pure trend following — no earnings models, no sentiment, just price. The strategy trades a 24-name large-cap universe spanning tech (AAPL, MSFT, NVDA), financials (JPM, V, MA), staples (KO, PG, WMT), healthcare (UNH, PFE), and energy (XOM, CVX). The design bet is simple and time-tested: cut losers quickly at the lower channel, let winners ride to the upper one.
Backtest performance
Over 451 days the strategy returned 6.95% (final equity $10,695, CAGR 3.83%) on a Sharpe of just 0.34, with a 21.73% max drawdown. The 38.46% win rate across 108 trades is unremarkable on its own, but for a breakout system it is expected — trend followers win less than half the time and rely on asymmetry, small losses against larger gains. The bigger red flag is 2,083% turnover: this strategy churns hard, and with $108 in fees against a $695 profit, transaction costs are eating a meaningful slice of edge.
Validation: it did not pass
Walk-forward testing tells a more honest story than the headline number. Across four folds, three were positive, and the two most recent are genuinely strong — Fold 3 returned 14.09% at a 2.72 Sharpe, Fold 4 returned 11.35% at 1.86. But Fold 2 lost 7.46% at a -1.07 Sharpe, exposing how badly this system bleeds in choppy, directionless tape.
Most importantly, the validation gate failed. The Probabilistic Sharpe Ratio (0.674) is only moderately confident the true Sharpe clears zero, and after deflating for 6 trials the Deflated Sharpe Ratio collapses to 0.198 — well short of the threshold that would justify treating the edge as real rather than a product of selection. The recent out-of-sample strength is encouraging, but the machine is right to withhold its stamp.
Recent activity
Here is the practical concern. The last executed trades were in early June (buys in KO, UNH, ABBV, AAPL; sells in MSFT, CAT). Since then every scheduled run — through August 5 — reports 0 executed, 2–3 rejected, with cash frozen at $1,760.89. Meanwhile paper equity has drifted from roughly $10,406 on July 29 to $9,872 on August 5, a slide in existing positions with no new breakouts being taken.
Verdict
Donchian Breakout is a clean, interpretable trend-follower with real out-of-sample promise in the last two folds. But a failed validation gate, a punishing 21.73% drawdown, cost-heavy turnover, and a week of rejected orders mean it stays firmly in the watch, don't trust bucket. The next few executed trades will tell us whether the recent strength was signal or luck.