The Thesis
Donchian-breakout is a textbook trend-follower: buy when price prints a new 20-day high, exit when it prints a new 20-day low. It trades a universe of 24 US large caps spanning tech (AAPL, MSFT, NVDA), financials (JPM, V, MA), staples (PG, KO, WMT) and healthcare (JNJ, UNH). The logic is deliberately simple and mechanical — no discretion, no forecasting, just riding confirmed momentum until it breaks. That simplicity is both its appeal and its ceiling.
Recent Activity
The live book is quiet. Across the six scheduled runs from 11 to 18 September, the strategy executed zero trades and logged 1–2 rejected orders each day. Total equity has drifted in a narrow band around $10,000 (from $9,945 to $10,025), with cash parked at $1,510.88. The last real executions were back on 12–13 August — buying V and MA, selling AAPL and UNH — and before that a cluster in early June (KO, UNH, ABBV, CAT). In other words, few fresh 20-day highs are firing right now, so the model is largely sitting on existing positions while new entries get rejected.
Backtest and Validation
Over 451 days the backtest returned +6.95% (final equity $10,695), a CAGR of 3.83%, with a 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 very high at 2,083%, though total fees came to only $108.
The walk-forward picture is more nuanced. Three of four folds were positive, and the two most recent folds were genuinely strong: fold 3 returned +14.09% (Sharpe 2.72) and fold 4 +11.35% (Sharpe 1.86, on just a 6% drawdown). The weak link is fold 2, which lost 7.46% with a Sharpe of -1.07.
Crucially, validation did not pass. Despite a decent PSR of 0.674, the deflated Sharpe ratio sits at 0.198 — once you penalise for the 6 trials tested, the edge is not statistically convincing. The headline full-period Sharpe of 0.34 simply is not high enough to clear the bar.
Strengths and Risks
Strengths: the recent out-of-sample folds are encouraging, the rules are transparent and cheap to run, and drawdown control in the latest fold was excellent. Risks: the overall Sharpe is thin, the max drawdown is uncomfortable, the win rate leaves it exposed to whipsaw in range-bound markets (see fold 2), and the low DSR warns that recent strength could be regime luck rather than durable edge.
Verdict
Promising momentum, unproven edge. The strategy stays live and worth watching, but the failed validation gate is the right call — we want more out-of-sample evidence before leaning on it.