The thesis
Donchian-breakout is a textbook trend-following system: buy when price clears its trailing 20-day high, and exit when it breaks the 20-day low. It runs over a 24-name universe of US large caps spanning tech (AAPL, MSFT, NVDA), financials (JPM, V, MA), healthcare (JNJ, UNH), staples (PG, KO, WMT, COST) and industrials/energy (CAT, HON, XOM, CVX). The logic is simple and well-understood, which is a virtue — there are few free parameters to overfit, and the exit rule is symmetric with the entry.
Recent activity
The past week has been quiet in execution but busy in intent. Across six scheduled runs (Oct 12–19), most order attempts were rejected: Oct 19 logged 0 executed / 3 rejected, Oct 16 was 0 / 2, and Oct 12 was 0 / 3. Only Oct 13 (2 executed) and Oct 15 (2 executed) landed fills. Notable recent trades include buying 21 shares of WMT at $118.23 and trimming 10 NVDA at $217.62 (Oct 15), plus a single MSFT share at $545.66 and a sale of 3 CAT at $767.05 (Oct 13). With cash sitting at $2,241, the high rejection count suggests breakout signals are firing faster than available capital can fund them. The live account total hovered between roughly $9,760 and $9,933 over the week.
Backtest and validation
Over 451 days the backtest returned 6.95% (a 3.83% CAGR), ending at $10,695. The Sharpe is a modest 0.34, max drawdown reached 21.73%, and the win rate was 38.46% across 108 trades. A sub-40% win rate is normal — even expected — for breakout trend-following, where a handful of large winners carry the book. More concerning is turnover of 2,083%, which generated $108 in fees and signals meaningful churn.
Walk-forward testing is more encouraging on the surface: 3 of 4 folds were positive. Fold 3 (Jul–Dec 2025) returned +14.09% at a 2.72 Sharpe, and fold 4 added +11.35%. But fold 2 (Jan–Jul 2025) lost 7.46% with a −1.07 Sharpe — the whipsaw signature of a non-trending regime.
Crucially, the strategy failed its validation gate. The probabilistic Sharpe ratio (PSR) of 0.674 sits below a typical confidence bar, and the deflated Sharpe ratio (DSR) of just 0.198 — adjusted for 6 trials — warns that the headline numbers may not be statistically distinguishable from luck once multiple-testing is accounted for.
Verdict and risks
Strengths: a durable, transparent thesis; genuinely strong recent out-of-sample folds; and contained drawdowns in three of four windows. Risks are equally clear: the failed validation gate, a weak full-sample Sharpe, one deeply negative regime, heavy turnover with associated fee drag, and live operational friction from rejected orders. Trend-following lives or dies by regime. The recent folds are promising, but the statistics counsel patience before sizing this one up.