The Thesis
donchian-breakout is trend-following in its purest, oldest form: buy when price closes at a 20-day high, exit when it prints a 20-day low. The idea is to ride sustained moves in a 24-name large-cap universe spanning tech (AAPL, MSFT, NVDA), financials (JPM, V, MA), staples (KO, PG, WMT), and energy (XOM, CVX). It expects to be wrong often but right big — a structure that lives or dies on a handful of large winners.
Backtest Snapshot
Over 451 days the strategy returned 6.95% (final equity $10,695), a 3.83% CAGR. The character is unmistakably breakout: a 38.46% win rate across 108 trades, meaning the average winner has to substantially outrun the frequent small losers. Two figures temper the enthusiasm. The Sharpe of 0.34 is weak — returns did not come cheaply on a risk-adjusted basis — and the 21.73% max drawdown is steep relative to a single-digit total return. Turnover of 2,082% also implies heavy churn, with $108 in fees that quietly nibble at a thin edge.
Validation: Failed, But Nuanced
The walk-forward gate returned passed: false, and the detail is worth reading rather than dismissing. Three of four folds were positive, and the two most recent — fold 3 (+14.09%, Sharpe 2.72) and fold 4 (+11.35%, Sharpe 1.86) — were genuinely strong. The blemish is fold 2 (Jan–Jul 2025): −7.46% with a −1.07 Sharpe, a stretch where breakouts repeatedly failed and reversed.
The statistical flags explain the rejection. The Probabilistic Sharpe Ratio of 0.674 is unconvincing, and the Deflated Sharpe of 0.198 — which penalizes for the 6 trials behind this strategy — is the real red line. In plain terms: after accounting for how many variants were tried, the measured skill is barely distinguishable from luck. Recent out-of-sample strength is encouraging but not yet enough to trust unconditionally.
Live Behavior
Production tells a cautious story. The last executed fills were in early June (KO, UNH, ABBV, AAPL, CAT). Since late July, every scheduled run has logged 0 executed and 2–3 rejected orders, with the book idling at $1,760.89 cash and total equity drifting from $10,258 (Jul 30) to $9,843 (Aug 6) — now below the $10k starting line. The rejections suggest breakout signals are firing but failing a downstream constraint (sizing, price, or risk check), leaving the strategy effectively parked.
Verdict
The design is sound and the recent folds hint at a real regime fit. But a failed deflated-Sharpe test, a 21% drawdown, and a live book that can't clear its own orders are three independent reasons to keep this one in observation rather than promotion. Trend-following rewards patience — but only once the plumbing and the statistics both hold up.