The Thesis
Donchian-breakout is trend following in its most classic form: buy when price sets a fresh 20-day high, exit when it prints a 20-day low. The idea is old and honest — let winners run through breakouts, cut positions as trends reverse — and it runs across a 24-name universe of large-cap US equities spanning tech (AAPL, MSFT, NVDA), financials (JPM, V, MA), staples (KO, PG, WMT), and healthcare (JNJ, UNH). It's currently flagged live.
Backtest Performance
Over 451 trading days the strategy returned 6.95%, ending at $10,695 of equity, for a modest 3.83% CAGR. The risk picture is less flattering: a Sharpe of 0.34 and a maximum drawdown of 21.73% mean investors absorbed real pain for that return. The win rate of 38.46% across 108 trades is normal for breakout systems — most trades are small losers, and a minority of large winners carry the book. What stands out is turnover of 2,082%: this strategy trades a lot, and while fees came in at only $108 with no FX cost, that churn is a structural drag worth watching.
Validation: Not Passed
The honest headline is that donchian-breakout failed validation. That verdict deserves nuance. Across four walk-forward folds, three were positive, and the out-of-sample slice returned 11.35% at a strong 1.86 Sharpe — better than the full-period backtest. Fold 3 was excellent (+14.09%, Sharpe 2.72, drawdown just 3.14%), and fold 4 held up (+11.35%). The failure traces largely to fold 2 (2025-01 to 2025-07), which lost 7.46% at a Sharpe of -1.07 — a choppy, trendless stretch that breakout systems reliably struggle in.
The deflated metrics tell the real story. The Probabilistic Sharpe Ratio sits at 0.674, but the Deflated Sharpe Ratio is only 0.198 after adjusting for 6 trials. In plain terms: once we account for how many variants were tested, the evidence that this edge is real — not luck — is weak. That is exactly what the validation gate is built to catch.
Recent Activity: Gone Quiet
Live behaviour reinforces the caution. The last executed trades were on 2026-08-13 (bought V, sold UNH). Since then, every scheduled run has logged zero executions and one-to-two rejections — six consecutive sessions from 2026-09-04 through 2026-09-11. Cash has been frozen at $1,510.88 the whole time, and total equity has drifted between $9,824 and $9,975, sitting at $9,945 on 2026-09-11. In short, the strategy is holding existing positions, finding no fresh 20-day breakouts it can act on, and its paper account is modestly underwater.
Verdict
Donchian-breakout is a clean, interpretable trend follower with genuinely good out-of-sample folds — but it is not validated, its deflated Sharpe is thin, and it is currently idle in a market offering it no breakouts. It earns a place on the watchlist, not the allocation sheet, until it clears the gate on fresh data.