The thesis
Donchian breakout is trend-following in its purest, oldest form: buy when price pushes through its 20-day high, exit when it breaks its 20-day low. It runs across a 24-name large-cap universe spanning tech (AAPL, MSFT, NVDA), payments (V, MA), staples (PG, KO, WMT) and energy (XOM, CVX). The logic is sound and well-documented in the literature — ride confirmed momentum, cut positions that roll over. The question is never whether the idea is coherent; it's whether this particular implementation clears the bar.
Recent activity
The strategy deployed capital on 2026-10-29 with four executed buys — ABBV (8 @ $289.91), MA (3 @ $636.60), HD (7 @ $328.57) and WMT (20 @ $121.17) — and has been effectively frozen since. Every scheduled run from 2026-11-06 through 2026-11-13 reports the same pattern: 0 executed, 1–2 rejected, with cash parked at $959.13 and total equity oscillating between roughly $10,162 and $10,289.
That's the tell. The book is fully invested, and with under a thousand dollars of dry powder against a universe of $300–$640 names, fresh breakout signals are being flagged but can't be filled. The strategy isn't broken — it's capital-constrained, watching opportunities it can't take.
Backtest and validation
Over 451 days the backtest returned 6.95% (final equity $10,695, CAGR 3.83%), with a Sharpe of just 0.34 and a punishing 21.73% max drawdown. Win rate is 38.46% across 108 trades — low, but entirely normal for trend-following, where a few large winners carry many small losers. Turnover is extreme at 2,083%, and while fees totalled a modest $108 with zero FX cost, that churn is a structural drag.
Walk-forward validation is where it gets interesting — and where it fails the gate. Three of four folds were positive, and the out-of-sample segments were genuinely strong (fold 3: +14.09%, Sharpe 2.72; fold 4: +11.35%, Sharpe 1.86). But fold 2 cratered at −7.46% (Sharpe −1.07), and the full-sample Sharpe of 0.34 drags everything down. The deflated Sharpe ratio (DSR) of 0.198 — adjusted for the 6 trials run — is the honest verdict: after accounting for selection, the edge isn't convincing. PSR of 0.674 is suggestive but not decisive.
Verdict
The strengths are real: a defensible thesis, no reliance on fragile parameters, and two recent OOS windows that performed well. The risks are equally real: a deep drawdown, a single fold that wiped out months of gains, heavy turnover, and a DSR that says the backtest flatters the strategy. The failed validation is the right call — this is a candidate worth watching live, not one to scale. For now it sits fully invested and idling, which means the next real test is whether it exits losers cleanly when the trend finally turns.