Thesis
Donchian-breakout is a textbook trend-following system: buy 20-day high breakouts and exit on 20-day lows. It runs across a 24-name universe of US large caps — mega-cap tech (AAPL, MSFT, NVDA), financials (JPM, V, MA), healthcare (UNH, JNJ), and staples (KO, PG, WMT). The logic is deliberately simple and asymmetric: let winners run until a fresh 20-day low, and cut everything else. Nothing here is exotic, which is a strength — the edge, if it exists, comes from discipline rather than curve-fitting.
Recent activity
Live behaviour over the past week tells a quieter story. Across six scheduled runs (Sept 3–10), the strategy executed zero trades and repeatedly rejected 1–2 candidate orders per run. Cash has sat unchanged at $1,510.88, while total account value drifted down from $10,084.48 on Sept 3 to $9,851.60 on Sept 10 — roughly a 2.3% mark-to-market slide driven entirely by existing holdings, not new positioning.
The last real fills came in mid-August: buys in V (5 @ $362.35) and MA (3 @ $559.85), paired with a UNH trim and an AAPL exit. Before that, activity clusters in early June. In other words, the breakout filter simply isn't firing right now — consistent with a market offering few clean 20-day highs to chase.
Backtest and validation
The full backtest covers 451 days: +6.95% total return, a modest 3.83% CAGR, Sharpe of just 0.34, and a steep 21.73% max drawdown. Win rate is a low 38.46% across 108 trades — normal for trend-following, where a few large winners must carry many small losers. Turnover is heavy at 2,082%, though fees stayed contained at $108.
Walk-forward validation is where the picture sharpens — and why the strategy fails our gate. Three of four folds were positive, and the results are strikingly bimodal:
- Fold 2 (Jan–Jul 2025): −7.46%, Sharpe −1.07 — a genuine drawdown regime.
- Fold 3 (Jul–Dec 2025): +14.09%, Sharpe 2.72 — a strong trending stretch.
- Fold 4 (most recent): +11.35%, Sharpe 1.86.
That variance is the honest signal: this is a regime-dependent strategy that shines in trending markets and bleeds in choppy ones. The out-of-sample stats look encouraging (OOS return 11.35%, OOS Sharpe 1.86), but the deflated metrics temper the enthusiasm. With 6 trials tested, the Deflated Sharpe Ratio is only 0.198 and the Probabilistic Sharpe Ratio is 0.674 — below the confidence we require to certify a live edge. The strong recent folds are not yet distinguishable from luck across the trials run.
Verdict
Donchian-breakout is a clean, interpretable trend-follower with real upside in trending regimes, and its two most recent folds are genuinely encouraging. But the risks are equally clear: a 21.7% drawdown, sub-0.35 full-sample Sharpe, a sub-0.2 DSR, and a live book that has gone weeks without a fill while quietly losing ground. It stays classified live but unvalidated — worth watching for a fourth strong fold to lift the deflated stats, not yet worth scaling.