The thesis
Donchian-breakout is a textbook trend-follower: buy when a name prints a fresh 20-day high, exit when it prints a 20-day low. It runs across a 24-stock large-cap universe spanning tech (AAPL, MSFT, NVDA), financials (JPM, V, MA), staples (PG, KO, WMT, COST) and cyclicals (CAT, XOM, DIS). The logic is deliberately simple — let breakouts run, cut positions that roll over — and it makes no attempt to forecast; it just follows.
Recent activity
The last two weeks have been quiet on the execution front. Scheduled runs on Oct 16, 19, 20, 21 and 22 all filled 0 orders while rejecting 2–3 candidates apiece — almost certainly for want of cash, with only $2,241 free against a total book near $9,800. The Oct 15 run was the exception, executing two trades. Actual fills over the past month include buys in WMT, MSFT, AAPL and NVDA and exits in NVDA, CAT, KO and WMT — a clean rotation. One telling example: it bought NVDA at $230.43 on Sep 30 and sold the lot at $217.62 on Oct 15, cutting a loser exactly as the rules prescribe. Equity sitting just under $9,800 means the strategy is modestly underwater and treading water in production.
Backtest and validation
Over 451 days the backtest returned 6.95% (3.83% CAGR) with a Sharpe of just 0.34 and a steep 21.73% max drawdown. The 38.46% win rate across 108 trades is low but normal for trend following, where a handful of large winners carry the book. Turnover is extreme at 2,083%, and $108 of fees is a genuine drag at this account size.
Walk-forward validation did not pass. Three of four folds were positive and the most recent out-of-sample stretch looks strong (11.35% return, 1.86 Sharpe). But fold 2 lost 7.46% (Sharpe −1.07), and the deflated Sharpe ratio of 0.198 — which penalises for the 6 trials tested — is the red flag: once selection is accounted for, the edge is thin. A PSR of 0.67 is only middling.
Strengths and risks
Strengths: a transparent, mechanical process that cuts losers without discretion, genuine out-of-sample gains in three of four folds, and encouraging behaviour in the two most recent periods.
Risks: a sub-0.5 full-sample Sharpe, 20%+ drawdowns, and fold 2's loss exposing the classic trend-following weakness — whipsaw in choppy, rangebound markets. High turnover amplifies fees and slippage, and the current cash squeeze means fresh breakouts may not even fill.
Verdict
An honest trend-follower with a real but unconfirmed edge. It stays live on probation. The things to watch: whether breakouts actually get funded given the cash constraint, and whether live results drift toward the strong recent folds or back toward the ugly fold 2.