The thesis
Donchian-breakout is a textbook trend-following system: buy 20-day high breakouts and exit on 20-day lows. It trades a 24-name large-cap universe spanning tech (AAPL, MSFT, NVDA), payments (V, MA), healthcare (JNJ, UNH, PFE), staples (KO, PG, WMT) and industrials (CAT, HON). The logic is deliberately simple — let winners run, cut losers when the channel breaks — and it makes no attempt to forecast. It reacts.
Recent activity
The last few weeks have been quiet. Across six scheduled runs from 7 to 14 September, the strategy executed zero trades and rejected one or two candidates each day. Cash has sat unchanged at $1,510.88, and account value has drifted between roughly $9,824 and $10,022 on the $10k paper base — essentially flat, moved by mark-to-market on existing holdings rather than new positioning.
The most recent executed fills date back to mid-August (a 5-share V buy and a UNH trim on the 13th) and June (KO, CAT, UNH, MSFT, ABBV). In other words, no fresh 20-day highs have cleared the strategy's filters lately. For a breakout system, a stretch of rejections is not a malfunction — it is the strategy correctly declining to chase a market that isn't breaking out.
Backtest and validation
The backtest covers 451 days and 108 trades for a total return of 6.95% (3.83% CAGR), a Sharpe of 0.34, and a max drawdown of 21.73%. The win rate is just 38.46% — normal for trend following, where a minority of large winners is expected to carry the book. Turnover is very high at 2,083%, though fees were a modest $108 and FX cost was zero.
The walk-forward picture is more nuanced. Of four folds, three were positive: fold 3 returned +14.09% (Sharpe 2.72) and fold 4 +11.35% (Sharpe 1.86), both strong. But fold 2 lost -7.46% with a Sharpe of -1.07, and the aggregate out-of-sample return of 11.35% comes with real dispersion between regimes.
Crucially, our validation gate marks this strategy as failed. The deflated Sharpe ratio is only 0.198 and the probabilistic Sharpe is 0.674 across 6 trials — not enough to rule out that the headline numbers are luck rather than edge. The one deep-red fold and the 21.73% drawdown reinforce the caution.
Verdict
Donchian-breakout is behaving exactly as a trend-follower should: patient in a rangebound tape, decisive when channels break. Its recent OOS folds are genuinely encouraging. But the failed validation, the losing fold, the low deflated Sharpe and the chunky drawdown all argue for keeping position sizing conservative. This is a strategy to watch and let prove itself — not one to lean on yet.