The Thesis
Donchian breakout is one of the oldest trend-following ideas in the book: buy when price closes above its 20-day high, and exit when it breaks below its 20-day low. The agent runs this rule across a 24-name universe of large-cap US equities spanning tech, financials, healthcare, staples, and energy. The premise is simple and honest — it does not predict, it reacts. It lets winners run and cuts positions that lose momentum.
Backtest Performance
Over 451 days the strategy returned 6.95%, ending at $10,695 on a $10,000 book — a 3.83% CAGR. That headline number hides the ride: a 21.73% max drawdown and a Sharpe of just 0.34. The 38.46% win rate across 108 trades is characteristic of breakout systems, which take many small losses to fund a few large wins. Turnover was heavy at 2,082%, though fees stayed contained at $108 with no FX cost. This is a strategy that trades often and wins rarely, betting that its winners are big enough to carry the book.
Validation: The Gate It Didn't Clear
The walk-forward test is where the picture sharpens. Across four folds, three were positive:
- Fold 1 (Aug 2024–Jan 2025): +0.73%, Sharpe 0.21
- Fold 2 (Jan–Jul 2025): −7.46%, Sharpe −1.07
- Fold 3 (Jul–Dec 2025): +14.09%, Sharpe 2.72
- Fold 4 (Dec 2025–May 2026): +11.35%, Sharpe 1.86
Out-of-sample the recent folds look strong — an 11.35% OOS return at a 1.86 Sharpe. But the aggregate validation still failed. The reason is the deflated Sharpe ratio of 0.198, which discounts performance for the 6 trials run during search. The probabilistic Sharpe (PSR) of 0.674 is decent but not conclusive, and fold 2's ugly −7.46% shows the strategy has no defense in choppy, trendless regimes. Honest validation caught what a single backtest would have flattered.
Recent Activity: Stalled
The live agent tells a quieter, more concerning story. Its last executed trades were in early June 2026 — buys in KO, UNH, ABBV, AAPL, and a CAT round-trip. Since then, every scheduled run has posted 0 executed, 2–3 rejected, with cash frozen at $1,760.89 and total equity drifting between roughly $9,817 and $9,872 — below the starting book. Whatever is blocking those orders (position sizing, cash constraints, or no valid breakout signals) has left the agent sidelined for a week, holding stale positions while its equity slowly bleeds.
Verdict
Donchian breakout is a clean, interpretable strategy with genuine OOS strength in trending regimes — but it failed its validation gate for good reason, carries a punishing drawdown, and is currently stuck rejecting every trade in production. Watch the rejection cause before trusting the live equity curve.