The Thesis
Dual-momentum is a trend-following strategy applied to a curated 24-name universe of large-cap US equities spanning technology, financials, healthcare, consumer staples, and energy. The rule is deliberately simple: rank holdings by their 60-day return, buy the leaders, and exit any position that breaks trend. No earnings models, no valuation screens — pure price action.
Backtest Snapshot
Over 451 trading days, dual-momentum compounded a paper account from $10,000 to $12,349.63 — a 23.5% total return and 12.52% annualised CAGR. The Sharpe ratio of 0.95 sits just below the conventional 1.0 benchmark, and a 15.67% maximum drawdown is meaningful but not extreme for an equity momentum strategy.
The 28.79% win rate across 136 trades looks low by headline standards, but this is characteristic of momentum approaches: losers are cut quickly while winners are held to run. The headline concern is turnover of 2,638% annualised. In a live-brokerage environment, slippage and commissions would materially erode these paper returns — a gap the current $1-per-trade fee assumption does not fully capture.
Walk-Forward Validation
The platform ran a four-fold walk-forward test, and the results are instructive:
| 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. The out-of-sample period (Fold 4) returned 13.34% with a Sharpe of 2.15 — a genuine bright spot that suggests the core signal survived parameter lock-in. Fold 2, however, was damaging: −7.31% with 60 trades in five months. The strategy churned aggressively in what appears to have been a choppy, trending-poorly environment — the exact regime where momentum strategies suffer most.
The validation engine returned a failing Deflated Sharpe Ratio (DSR) of 0.476, below the standard 0.5 threshold. With six parameter trials applied to the same dataset, some of the observed edge is likely attributable to multiple-testing luck. The Probabilistic Sharpe Ratio of 0.893 is more encouraging, but the DSR is the binding constraint here, and the platform correctly flags the strategy as not yet cleared.
Recent Activity
Since June 15, dual-momentum has executed zero trades across six consecutive scheduled runs, holding its full $10,000 in cash. The strategy is finding no signals that clear its trend threshold in the current environment. This "sit and wait" posture is working exactly as designed — the system would rather stay flat than force a marginal trade.
Risks to Watch
- Turnover cost bleed: 2,638% annual turnover is a significant liability outside of paper trading. Real-world viability hinges on execution-cost assumptions that are still theoretical.
- Choppy-market fragility: Fold 2 demonstrated that prolonged sideways or volatile regimes generate frequent stop-outs and compounding small losses.
- Multiple-testing overhang: The DSR failure means more live data is needed before the edge can be attributed to the strategy rather than the search process.
Bottom Line
Dual-momentum presents a coherent thesis, a clean rules-based structure, and an encouraging out-of-sample result. But the failed validation gate, extreme simulated turnover, and demonstrated drawdown in trend-poor conditions argue for continued paper-trading observation. It is a strategy to watch closely — not yet one to fund.