What the Strategy Does
Dual-momentum is one of the simplest systematic strategies: rank the 24-name universe (large-cap US equities spanning tech, financials, healthcare, consumer staples, and energy) by 60-day return, hold the strongest trending names, and exit any position when the trend breaks. No macro overlay, no earnings filters — pure price momentum with a fixed lookback.
The universe is deliberately diversified across sectors, which gives the strategy natural rotation opportunities as leadership shifts between, say, NVDA and KO. That breadth is a feature, not an accident.
Backtest Headline Numbers
Over 451 days of simulated history the strategy returned 23.5% (12.52% annualised), ending at $12,349.63 on a $10,000 stake. The Sharpe of 0.95 is respectable for a long-only equity strategy, and maximum drawdown came in at 15.67% — painful but not unusual for momentum in a volatile tape.
The catch is turnover. At 2,638% annualised, the strategy is churning the book roughly 26× per year across 136 trades. At $1 per trade in simulated fees, costs are trivially small in this backtest, but real-world slippage and commissions at that cadence would eat meaningfully into returns. Anyone running this live with meaningful size should model realistic transaction costs.
The win rate of 28.79% is characteristically low for a trend-follower — the strategy wins infrequently but aims for the gains to be large relative to the losses. Whether that ratio holds out-of-sample is the central question.
Cross-Validation: Where the Flag Goes Up
Headmars runs a 4-fold walk-forward validation before promoting any strategy. Dual-momentum did not pass, and the fold breakdown explains why.
| Fold | Period | Return | Sharpe | Max DD |
|---|---|---|---|---|
| 1 | Aug 2024 – Jan 2025 | +5.85% | 1.23 | 3.92% |
| 2 | Jan 2025 – Jul 2025 | −7.31% | −1.05 | 17.15% |
| 3 | Jul 2025 – Dec 2025 | +25.59% | 3.32 | 4.04% |
| 4 | Dec 2025 – May 2026 | +13.34% | 2.15 | 7.43% |
Three of four folds are positive, and the out-of-sample Sharpe of 2.15 in the most recent window is genuinely strong. But Fold 2 is the stress case: a −7.31% return with a 17.15% drawdown and 60 trades crammed into six months points to a momentum strategy caught in a choppy, mean-reverting tape. The Deflated Sharpe Ratio (DSR) of 0.476 — below the 0.5 threshold — confirms that after adjusting for the number of trials (6) and the strategy's known non-normality, the headline Sharpe is not statistically significant yet. The PSR of 0.893 is more encouraging but not enough to flip the gate.
This is not a disqualifying result; it is an honest one. The validation system is doing its job.
Live Status
Dual-momentum was deployed on 31 May 2026 with $10,000 in paper-trading mode. Scheduled runs on 1–3 June each show zero trades executed — the strategy is watching its universe and finding no positions that meet the entry threshold. That is not a bug; in flat or consolidating market conditions, a trend-follower sitting in cash is the intended behaviour.
Bottom Line
Dual-momentum is a coherent, well-understood strategy with a positive backtest track record and a promising recent fold. The validation failure is a yellow flag, not a red one — driven largely by one ugly period that any momentum investor would recognise as the known failure mode of the style. Worth watching as live paper-trade history accumulates, particularly how it navigates the next rotational regime.