Strategy Thesis
Dual-momentum is one of the cleaner ideas in systematic equity trading: rank a universe of large-cap names by their 60-day return, hold the leaders, and exit when the trend breaks. No earnings forecasts, no macro bets — just price telling you where institutional money is flowing. The universe here spans 24 names across tech, financials, healthcare, consumer, and energy, giving the strategy enough breadth to rotate without becoming a single-sector bet.
Backtest Summary
Over 451 calendar days the strategy compounded to +23.5% (CAGR ~12.5%), ending with a simulated equity of $12,349 from a $10,000 start. The Sharpe of 0.95 is respectable — not exceptional, but consistent with a trend-follower that spends meaningful time in cash. Maximum drawdown landed at 15.67%, which is manageable for the return profile, though not trivial.
The headline that deserves more attention: a 28.8% win rate across 136 trades. Momentum strategies characteristically win infrequently but let winners run — that's the design. Still, a sub-30% hit rate means long cold streaks are structurally baked in, and live accounts need to be sized accordingly.
Turnover came in at 2,638% annualised, which is high. At $1 per trade in fees (total fees: $136 over the period) the friction is negligible at paper scale, but any real deployment would need careful attention to spread and slippage, especially in thinner names like DIS or NKE on rotation days.
Cross-Validation: The Case for Caution
Four time-series folds were run; three were positive. That 3/4 record sounds solid until you look at the dispersion:
| 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% |
Fold 2 is the problem child. A −7.31% return with a 17.15% drawdown in a trending large-cap universe suggests the strategy got caught rotating into names that reversed sharply — likely the volatility spike that characterised early-to-mid 2025. When momentum breaks, this kind of strategy can trade actively into the drawdown before the exit signal fires.
The out-of-sample Sharpe of 2.15 (Fold 4) is the most recent read and is encouraging. But the probabilistic Sharpe ratio of 0.893 and the deflated Sharpe ratio of 0.476 — the latter adjusted for the number of trials — tell a more sober story. With 6 parameter trials, the DSR below 0.5 means the edge, while real, hasn't been demonstrated with high confidence across configurations. Validation status: not passed.
Recent Activity
The live paper account has been running scheduled daily checks since at least June 3rd and has executed zero trades across six consecutive sessions, holding the full $10,000 in cash. This is consistent behaviour for a momentum strategy waiting for a clean trend signal — it only deploys when a name clears the 60-day return threshold. No signals, no trades; the system is working as designed.
Bottom Line
Dual-momentum has real signal in it. The out-of-sample return and recent fold performance are genuinely positive. The risk is regime-dependence: this strategy thrives in persistent trends and bleeds in choppy, reverting markets. Until the DSR clears a meaningful threshold and the fold-2-style drawdown scenario is better understood, paper trading is the right posture. Watch Fold 2 as the stress-test benchmark — any live deployment should prove it can navigate that regime before capital is committed.