The Thesis
Donchian-breakout is textbook trend following: 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 dead positions quickly, accepting many small losses in exchange for a handful of large winners. It runs across a 24-name large-cap universe — mega-cap tech, financials, healthcare and consumer staples — so breakouts have a broad field to fire from.
Recent Activity
The strategy put capital to work on 29 October, buying ABBV, MA, HD and WMT in a single session. Since then it has gone quiet: every scheduled run from 30 October through 6 November executed zero trades and rejected one or two candidates each time. Cash has sat frozen at $959.13 throughout, which tells us the book is essentially fully allocated and no fresh 20-day high has cleared the entry filter. Total equity has drifted in a narrow band — roughly $10,004 to $10,391 — ending at $10,161.90. That is the signature of a trend-follower holding positions and waiting: no new signals, no exits triggered, just mark-to-market noise.
Backtest and Validation
Over 451 days the backtest returned +6.95% (final equity $10,695, a 3.83% CAGR) on 108 trades. The headline numbers are sobering. The Sharpe of 0.34 is weak, the max drawdown of 21.73% is more than three times the full-period return, and the 38.46% win rate confirms the strategy loses more often than it wins — acceptable only if winners are large enough to compensate.
Most importantly, the validation gate failed. Across four walk-forward folds, three were positive, but the dispersion is stark:
| Fold | Period | Return | Sharpe | Max DD |
|---|---|---|---|---|
| 1 | Aug 2024–Jan 2025 | +0.73% | 0.21 | 6.71% |
| 2 | Jan–Jul 2025 | −7.46% | −1.07 | 15.58% |
| 3 | Jul–Dec 2025 | +14.09% | 2.72 | 3.14% |
| 4 | Dec 2025–May 2026 | +11.35% | 1.86 | 6.01% |
The deflated Sharpe ratio (DSR 0.198) is the number that fails the test: adjusted for the six trials run, there is little statistical confidence the edge is real rather than lucky. The probabilistic Sharpe (0.674) is suggestive but short of conviction.
Strengths and Risks
The encouraging note is that the two most recent folds — and the out-of-sample segment (+11.35%, Sharpe 1.86) — are the strongest, hinting the rules travel into unseen data better than the muddy full-period Sharpe suggests. Trend following also tends to shine in regimes this backtest may not have captured.
The risks are plainer. Fold 2's −7.46% shows how badly the strategy bleeds in choppy, mean-reverting markets, and a 2,083% turnover means it leans hard on frequent re-entry — every whipsaw costs a fee. With validation failed and a sub-0.5 live Sharpe, donchian-breakout belongs in the 'promising but unproven' bucket: worth watching its live breakouts closely, not sizing up yet.