The Thesis
donchian-breakout runs one of the oldest ideas in systematic trading: buy the 20-day high, exit on the 20-day low. It trades a 24-name large-cap universe spanning tech (AAPL, MSFT, NVDA), payments (V, MA), healthcare (JNJ, UNH), staples (PG, KO, WMT), and energy (XOM, CVX). The premise is that price breaking to a new high carries information — momentum tends to persist — and that a symmetric channel exit cuts losers before they compound. It is currently classified live.
Recent Activity
The strategy is quiet right now. Its last executed fills were in mid-August: buying V (5 @ $362.35) and MA (3 @ $559.85) while selling UNH and AAPL. Since then, every scheduled run has produced zero executions and one to two rejections — six sessions straight from Aug 26 through Sep 2. The paper account sits at roughly $10,080 total with $1,510.88 in cash, having drifted down modestly from $10,182 over that window. Rejections with cash available usually point to position-sizing or exposure constraints rather than a lack of signals; it is worth confirming the order logic isn't silently starving the book of new breakouts.
Backtest & Validation
Over 451 days the backtest returned 6.95% (3.83% CAGR) on 108 trades, with a Sharpe of just 0.34 and a punishing 21.73% max drawdown. The 38.46% win rate is not a red flag on its own — it is the expected shape of trend following, where a minority of large winners carries a majority of small losers. More concerning is turnover of 2,083%, which churns the book and drags fees.
Walk-forward validation is more revealing. Three of four folds were positive, and the story is bimodal: fold 2 (Jan–Jul 2025) lost 7.46% with a −1.07 Sharpe, while folds 3 and 4 delivered 14.09% and 11.35% at Sharpes of 2.72 and 1.86. In other words, the strategy thrives in trending regimes and bleeds in choppy ones — exactly the behaviour the design implies, but also a reminder that its edge is regime-dependent.
Crucially, validation did not pass. Despite a healthy out-of-sample Sharpe of 1.86, the deflated Sharpe ratio (DSR) is 0.198 and the probabilistic Sharpe (PSR) is 0.674 across 6 trials. After correcting for selection across those trials, the evidence that the true Sharpe clears zero is thin. The strong recent folds are encouraging but not yet distinguishable from luck at our confidence threshold.
The Verdict
donchian-breakout is honest about what it is: a low-hit-rate, positive-skew trend-follower that needs sustained directional moves to earn its drawdown. The recent-fold strength and OOS Sharpe are genuine strengths. But a 21.7% drawdown, sub-0.35 full-sample Sharpe, and a DSR under 0.2 mean it stays in observation, not conviction. The run of rejected orders should be diagnosed before we read anything into the current flat activity.