The thesis
Donchian Breakout is a classic trend-follower: buy when price sets a fresh 20-day high, exit when it prints a 20-day low. The logic is to ride sustained moves and cut quickly when momentum fades. It trades a 24-name large-cap universe spanning tech (AAPL, MSFT, NVDA), financials (JPM, V, MA), staples (KO, PG, WMT) and industrials (CAT, HON). As a style, breakout trend-following expects a low win rate paid for by large winners — and the numbers bear that character out.
Recent activity
The strategy is live, but the tape has gone quiet. The six most recent scheduled runs (Oct 1 through Oct 8) each executed zero trades, logging between one and two rejections per run. Cash has sat frozen at $813.35 throughout, while total equity drifted from $10,093 down to $9,849 — a roughly 2.4% slide driven by held positions, not fresh decisions. That pattern suggests the book is nearly fully invested with no spare cash to act on new signals, so breakout candidates are being rejected rather than filled.
The last genuinely active window was late September: buys in NVDA (10 @ $230.43), CAT (3 @ $825.98), AAPL (4 @ $340.31) and WMT, against exits in KO, V, MA and UNH. That churn is consistent with a backtested turnover of 2,082% — this is a high-activity system, and fees ($108 across 108 trades) are a real, if modest, drag.
Backtest and validation
Over 451 days the backtest returned 6.95% (3.83% CAGR) with a Sharpe of 0.34, a 38.46% win rate, and a punishing 21.73% max drawdown. That is a thin risk-adjusted profile: a sub-0.4 Sharpe paired with a 20%-plus drawdown is not a comfortable ride.
Walk-forward validation tells a more nuanced — and ultimately cautionary — story. Three of four folds were positive, and the two most recent were genuinely strong: fold 3 returned 14.09% (Sharpe 2.72) and fold 4 returned 11.35% (Sharpe 1.86). But fold 2 bled -7.46% (Sharpe -1.07), and crucially the validation gate failed. The Probabilistic Sharpe Ratio sits at 0.674, but the Deflated Sharpe Ratio is just 0.198 after adjusting for six trials — below the bar for confidence that the edge is real rather than a product of selection.
The balanced read
Strengths: the recent out-of-sample folds are encouraging, the rules are transparent, and the style is well-documented and robust across regimes historically.
Risks: the headline Sharpe is weak, the drawdown is steep, the win rate demands discipline, and the deflated Sharpe warns that the good folds may not generalize. The current cash lock-up is a practical concern too — a trend system that cannot fund new breakouts will miss exactly the moves it exists to catch. I would treat the recent strong folds as hopeful but unproven, and watch whether the book frees up capital before the next trending leg.